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Form 20-F

(Mark One)



| ̈ | REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------------

OR



|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------

For the year ended December 31, 2012

OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------

Commission file number 1-10284

Allied Irish Banks,

public limited company

(Exact name of registrant as specified in its charter)

Ireland

(Jurisdiction of incorporation or organization)

Bankcentre, Ballsbridge, Dublin 4, Ireland

(Address of principal executive offices)

David OCallaghan,
Company Secretary

Allied Irish Banks, p.l.c.

Bankcentre, Ballsbridge

Dublin 4, Ireland

Telephone no: +353 1 6600311

(Name, telephone number and address of Company contact person)

Securities registered or to be registered pursuant to Section 12(b) of the Act

None

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

None

Indicate the
number of outstanding shares of each of the issuers classes of capital or common stock as of the close of the period covered by the annual report.



|                                 |  |                
|-------------------------------- |  | ---------------
|Ordinary shares of EUR 0.01 each |  | 517,117,096,249

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.  YesxNo ̈

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90
days.  YesxNo ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of accelerated filer and large accelerated filer
in Rule 12b-2 of the Exchange Act.

Large accelerated
filer ̈Accelerated
filerxNon-accelerated
filer ̈

Indicate by check mark which basis of accounting the
registrant has used to prepare the financial statements included in this filing:

US GAAP ̈IFRSxOther ̈

If Other has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has
elected to follow.  Item 17 ̈Item 18 ̈

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act).  Yes ̈Nox



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LOGO






Contents   PageBusiness reviewChairmans statement


4Chief Executive Officers review


6Corporate Social Responsibility


9Financial review


11Risk ManagementRisk factors


58Framework


65Individual risk types


68Governance and oversightThe Board & Executive Officers


168Report of the Directors


171Corporate Governance statement


173Supervision & Regulation


185Financial statementsAccounting policies


193Consolidated financial statements


218Notes to the consolidated financial statements


225Parent company financial statements


342Notes to the parent company financial statements


347Statement of Directors responsibilities in relation to the Accounts


381Independent Auditors Report


382General informationAdditional information


384Glossary of terms


405Principal addresses


410Index


411








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|LOGO |  |  |  | 






Forward-looking information This document contains certain forward-looking statements within the meaning of Section 27A of the US Securities Act of 1933 and Section 21E of the US
Securities Exchange Act of 1934, with respect to the financial condition, results of operations and business of the Group and certain of the plans and objectives of the Group. In particular, among other statements in this Annual Financial Report,
with regard to management objectives, trends in results of operations, margins, risk management, competition and the impact of changes in International Financial Reporting Standards are forward-looking in nature. These forward-looking statements can
be identified by the fact that they do not relate only to historical or current facts. Forward-looking statements sometimes use words such as aim, anticipate, target, expect, estimate,
intend, plan, goal, believe, may, could, will, seek, continue, should, assume, or other words of similar meaning.
Examples of forward-looking statements include among others, statements regarding the Groups future financial position, income growth, loan losses, business strategy, projected costs, capital ratios, estimates of capital expenditures, and
plans and objectives for future operations. Because such statements are inherently subject to risks and uncertainties, actual results may differ materially from those expressed or implied by such forward-looking information. By their nature,
forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. There are a number of factors that could cause actual results and developments to differ materially from
those expressed or implied by these forward-looking statements. These are set out in Risk factors on pages 58 to 64. These factors include, but are not limited to the Groups access to funding and liquidity which is adversely
affected by the financial instability within the Eurozone, contagion risks disrupting the financial markets, and the potential for one or more countries exiting the euro, constraints on liquidity and market reaction to factors affecting Ireland and
the Irish economy, the Groups markets, particularly for retail deposits, at risk from more intense competition, the Groups business being adversely affected by a further deterioration in economic and market conditions, general economic
conditions being very challenging for our mortgage and other lending customers and increase the risk of payment default, including the risks associated with large scale forbearance strategies, the depressed Irish property prices may give rise to
increased losses experienced by the Group, the Group faces market risks, including non-trading interest rate risk, the Group is subject to rigorous and demanding Government supervision and oversight, the Group may be subject to the risk of having
insufficient capital to meet increased regulatory requirements, the Groups business activities must comply with increasing levels of regulation, the Groups participation in the NAMA Programme gives rise to certain residual financial
risks, the Group may be adversely affected by further austerity and budget measures introduced by the Irish Government, the value of certain financial instruments recorded at fair value is determined using financial models incorporating assumptions,
judgements and estimates that may change over time, or may ultimately not turn out to be accurate, the Groups deferred tax assets depend substantially on the generation of future profits over an extended number of years, adverse changes to tax
legislation, regulatory requirements or accounting standards could impact capital ratios, the Group is subject to inherent credit risks in respect of customers, the Group faces heightened operational and reputational risks, the restructuring of the
Group entails risk, the Groups risk management strategies and techniques may be unsuccessful, risk of litigation arising from the Groups activities. Any forward-looking statements made by or on behalf of the Group speak only as of the
date they are made. AIB cautions that the foregoing list of important factors is not exhaustive. Investors and others should carefully consider the foregoing factors and other uncertainties and events when making an investment decision based on any
forward-looking statement. In light of these risks, uncertainties and assumptions, the forward-looking events discussed in this Annual Financial Report may not occur. The Group does not undertake to release publicly any revision to these
forward-looking statements to reflect events, circumstances or unanticipated events occurring after the date hereof.








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| |  | Financial highlights |  | LOGO






2012
 m


2011
 mResultsTotal operating income


621



4,340Operating loss


(3,845
)


(5,108
)Loss before taxation from continuing operations before exceptional items(1)


(2,829
)


(8,060
)Loss before taxation from continuing operations (including exceptional items)


(3,830
)


(5,108
)Profit after taxation from discontinued operations






1,628Loss attributable to owners of the parent


(3,647
)


(2,312
)Per ordinary shareLoss  basic from continuing operations


(0.7
c)


(1.6
c)Loss  diluted from continuing operations


(0.7
c)


(1.6
c)Earnings  basic from discontinued operations






0.7
cEarnings - diluted from discontinued operations






0.7
cDividend






Dividend payout






Net assets


 0.02



 0.05Performance measuresReturn on average total assets


(2.76
%)


(1.66
%)Return on average ordinary shareholders equity


(37.0
%)


(48.8
%)Statement of financial positionTotal assets


122,516



136,651Ordinary shareholders equity


7,741



10,963Shareholders equity


11,241



14,463Loans and receivables to customers including held for sale


73,325



83,724Customer accounts


63,610



60,674Capital ratiosCore tier 1 capital


15.1
%


17.9
%Total capital


17.6
%


20.5
% (1)Exceptional items are detailed on page 21 of the Management report.








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|LOGO |  | Chairmans statement |  | 






The re-establishment of AIB as a stable, soundly functioning bank progressed throughout 2012. Rebuilding its foundations as
an institution capable of serving our customers and the Irish economy to the highest standard involved significant adjustment, resolve and sound management. But,
unprecedented times require unprecedented change and in the past number of years, and specifically in 2012, AIB has undergone major restructuring, established a new leadership team, implemented a new customer-focused strategy and begun a deep
cost-cutting programme. This was achieved while assisting customers in financial difficulty and exceeding targets for SME and mortgage lending. Against a
challenging global economic backdrop, in 2012 AIB showed encouraging signs of returning to normalised banking operation. We increased our market share in key product areas, progressed non-core deleveraging and returned to the bond markets. We saw a
major reduction in our operating loss, on a pre-exceptional basis, and a 70% reduction in bad debt provisions year on year. Culturally, the customer and the
community lies at the core of AIBs business and the entire focus of the banks strategy is to regain stability and return to sustainable profitability within a reasonable timeframe  while looking after our c. 2 million
customers. We again acknowledge the very significant contribution that the Irish taxpayer has made to this bank and recognise the need to return capital to the State. The capacity to deal with customers in financial difficulty was expanded in 2012. Approximately two thousand staff have been trained specifically to engage with, and
assist, customers dealing with financial stress. The Financial Solutions Group was set up, in part to manage customers in difficulty across the bank. In October, the Mortgages Arrears Resolution (MARS) programme completed the development
of tailored forbearance options. The banks Arrears Support Unit launched the first phase of its outreach programme, work that will continue to gain momentum throughout 2013. In addition, the bank is closely engaged with our SME customers in
difficulty in seeking to return them to viability where possible. The process of rebuilding a more effective commercial capability has also progressed well, as the
separation of those responsible for dealing with customers in financial difficulty now allows front line staff to focus more on other clients and their needs. With
c.800,000 AIB customers now using on-line banking, the bank is accelerating investment in our digital banking capability allowing a higher level of self-service and automation of transactions. This continuing investment in operational efficiency has allowed the implementation of a voluntary severance programme which is seeing a material reduction in the
workforce, and from 2013 onwards, a consequent reduction in operating costs will be evident.
 Throughout AIB the need to engage with and regain the trust of our customers is well understood. This can only be achieved
and demonstrated by actions rather than words, and this is a primary objective at all levels throughout the organisation. The support that we have received from our
customers and stakeholders through these challenging times continues to be deeply appreciated. We have growing confidence in Irelands economic progress and we look forward to playing our part in it. Leadership Following the appointment of David Duffy as CEO in December 2011,
comprehensive changes have been made to the Banks Leadership Team, the composition of which has largely been refreshed with six appointments during 2012. The new appointments to this team were completed following rigorous selection processes
and the Bank has been successful in attracting high quality individuals to the organisation with international finance experience. The Leadership Team is supported
by the Leadership Council, created in 2012, which comprises of senior management from across the bank. This Leadership Council works with the Leadership Team to further embed the banks revised strategy and cultural change across the
organisation. The creation of the Leadership Council is part of an overall talent identification and succession planning process across the senior levels of the bank which serves to strengthen and develop talent across the organisation. I believe
this strong and diverse management team, ably led by David Duffy, is well placed to ensure the delivery of AIBs strategic priorities over the coming years. Board Changes Declan Collier retired from the Board in 2012 due to other
business commitments. I wish to thank Declan for his commitment and support to AIB during his 3 years as an AIB Board member. Peter Hagan and Tom Foley joined the
Board during the year as Non-Executive Directors and bring with them numerous years of experience in the banking industry. I welcome both Peter and Tom to the Board. A short biography and background of all our Directors is set out on pages 168 to 170. Summary We have made progress in 2012 as we seek to return AIB to a customer
centric, sustainable business model but there is a lot more to do. I am satisfied that AIB is moving in the right direction as we implement our strategic priorities
and I want to sincerely thank our supportive and loyal staff who will continue to play a critical role in the target of returning AIB to sustainable profitability








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during 2014. To our customers and the Irish public, I also say thank you for your immense support. I also want to acknowledge the assistance that the Department of Finance and the Central Bank of Ireland continued to give AIB throughout 2012. I am confident that
together we can meet the considerable challenges that lie ahead and find workable solutions. David Hodgkinson Chairman 26 March 2013








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|     |  |                          |  | 
|---- |  | ------------------------ |  | 
|LOGO |  | Chief Executives review |  | 






AIB has now largely completed the restructuring phase of its strategic plan as the bank targets a return to sustainable
profitability and growth during 2014. While 2012 was another very challenging year for the Group, a number of important steps were taken to position the bank for recovery over the longer term. We continued to make progress on restructuring our
balance sheet, undertook a number of strategic initiatives which will reduce the banks cost base over time, improved funding costs and took steps to increase margins on income earning assets. Progress was also made in reorienting the
organisation to be better aligned with the needs of our customers. A key strategic objective of the bank is to improve operating performance through significant
cost reductions by 2014. We have made progress in 2012 in delivering this objective as a result of the commencement of the Voluntary Severance Programme and other measures including pay and benefit reductions. We will see the positive impact of our
cost initiatives in the operating performance of the bank going forward. Management actions on the repricing of assets and liabilities throughout 2012 have seen a stabilisation in the banks net interest margin with positive quarter on quarter
growth in the fourth quarter of 2012. This, coupled with the Minister for Finances recent announcement that the Eligible Liabilities Guarantee (ELG) is to end for new liabilities at the end of March 2013, are important milestones
in the banks recovery. Customers A focus on customer service is
central to our revised strategy and during 2012 we took further steps to enhance our distribution capability through increased online services, mobile banks and self-service lobbies. Through our expanded agreement with An Post, we are providing
additional banking services to our customers in locations where branches have recently closed. We have continued to invest in technology across our distribution network in order to enhance customer service and increase efficiency over time. Our
overall distribution network will continue to be reviewed in future periods to ensure the appropriate balance between customer and commercial requirements with investment in technology being a key component of our differentiated customer
proposition. AIB will continue to ensure, as part of its overall strategic goals, that it supports economic recovery in Ireland through its lending to personal,
business and corporate customers. Supporting SMEs AIB exceeded the Irish
Governments  3.5 billion SME lending target by  1.3 billion in 2012 by approving credit to almost 32,000
customers, including new, refinanced and restructured facilities. The bank continued to promote the availability of credit finance for SMEs throughout 2012 through initiatives launched under the Big Drive for Small Business campaign,
 including funds participation and advertising campaigns highlighting our open for business agenda. We supported customers at a local level through the provision of seminars attended
by over 4,000 SME customers and a 90-day coaching programme for c.3,000 micro-enterprises. The bank also participated in a number of Government supported
initiatives including the Micro Finance Ireland Fund and the Temporary Partial Loan Guarantee Scheme as well as participation in other joint funds with Enterprise Ireland. In November 2012, AIB entered into a Risk Sharing Initiative
(RSI) with the European Investment Fund to provide financing for innovative companies in emerging markets. We revised our lending standards in an effort
to reduce complexity and launched an initiative aimed at allowing SME loans for existing customers of up to  25,000 to be approved within 48 hours at
branch level. We will continue to engage with our SME customers and enhance our products and service offerings in 2013 with a view to achieving our Government SME lending target of  4 billion. Supporting mortgage customers AIB remains committed to the mortgage market in
Ireland and surpassed its 2012 lending target of  1 billion by approving  1.5 billion in mortgages. In volume
terms, we approved c.60% more mortgages in 2012 versus 2011, and management estimates that AIBs share of the mortgage market in Ireland was c.46% in 2012. We approved c. 70% of mortgage applications received from customers in 2012 and AIB
(including EBS) has set a target of  2 billion in mortgage approvals in 2013. Customers in financial difficulty The Financial Solutions Group was created in the latter part of 2012 as part of the overall restructuring of the bank to ensure that all customers in financial
difficulty are managed within one dedicated unit. The Mortgage Arrears Resolution Strategy (MARS) Programme completed the development of tailored
forbearance options for Irish customers in arrears in October and these are now being offered in the Arrears Support Unit (ASU) and will continue to be refined throughout 2013. The first phase of our Outreach Programme was
launched to encourage pro-active and early customer engagement. Our strategy is to keep people in their homes, wherever possible, where mortgage payments are being prioritised and customers are co-operating with the bank. Over 80% of our mortgage cases in the ASU are engaged with the bank and AIB intends to meet/exceed the recently announced Central Bank of Ireland 2013 sustainable
mortgage solution targets as part of its ongoing efforts to deal effectively and quickly with these customers.








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The restructure of our Irish SME customers in financial difficulty is also underway with a stabilisation, sustain and
resolve approach being applied. Our priority is to support viable businesses and to protect jobs where possible. We have defined a One Customer Debt Management Strategy which is designed to resolve debt obligations across multiple asset
categories including medium to long term solutions. A significant majority of customers are actively engaged with the bank. The implementation of treatment strategies for both our mortgage and SME customers remains a critical strategic imperative
for the bank in 2013. How AIB treats its customers throughout this difficult period will have a defining impact on AIBs successful recovery over time and as an organisation we must strive to deliver best in class customer service in every
engagement with our customers. Relationship with the Irish Government Without the support provided by the Irish Government over the last number of years AIB would not exist today. As an organisation we are focused on ensuring the bank
targets a return to sustainable profitability during 2014, so that the Irish Government can recover its investment in AIB over time. Staff As a result of the Voluntary Severance Programme launched in May 2012, a large number of staff left the bank throughout 2012 and further departures are expected in 2013.
I wish to offer my thanks and appreciation to those people for their contribution to AIB over the years. Secondly, I wish to thank my colleagues who remain in the organisation for their loyalty and flexibility through this long period of
restructuring and change and for their continued focus on and commitment to our customers requirements. Our success in meeting our goal of returning to sustainable profitability is dependent in part on the hard work and commitment of our
staff. Economic commentary Growth in the Irish economy in 2012 was driven
by continued strength in the export sector, while the domestic economy continued to contract due to lower consumer and government spending. Credit demand and growth remained weak, however, we have seen some signs of stabilisation in the housing
market with an improvement in the level of housing transactions, albeit off a low base. Fiscal adjustments, although negatively affecting affordability, have
stabilised budget deficits and improved market sentiment towards Ireland. As a result, both the Sovereign and AIB were able to successfully enter the international funding markets in 2012. We believe that domestic demand will remain constrained in 2013, however, there are signs that economic activity is continuing to stabilise. AIB has grown its market
share in key product segments throughout 2012 and is positioning its business to fully support economic recovery.
 Financial performance AIBs
underlying loss before tax, excluding exceptionals, reduced from  8.1 billion in 2011 to  2.8 billion in 2012.
This reduction was predominantly driven by a 70% reduction in provisions from  8.2 billion in 2011 to  2.5 billion in 2012. The reported operating loss before
provisions of  315 million in 2012 compares to an operating profit of  101 million in 2011. The reduction in operating profit is due predominantly to
lower levels of income, down by  364 million, or 20% due to lower loan balances, lower customer transactions and higher funding costs. Underlying 2012 operating expenses, excluding the full year impact of the acquired EBS business, were broadly flat year on year. The material benefit from cost
initiatives taken in 2012 and ongoing management actions are expected to reduce overall costs in 2013 and beyond. These costs will be further reduced by the elimination of the ELG cost which amounted to  388 million in 2012. Capital The Groups core tier 1 capital ratio remains robust at 15.1% at December 2012 compared to 17.9% at the end of 2011. Risk Weighted Asset reduction of  12.9 billion from  84.3 billion to  71.4 billion reflects the overall
significant deleveraging achieved in 2012. Our total capital ratio at the end of 2012 was 17.6% compared to 20.5% at the end of 2011. We continue to assess the impact of Basel III on the Groups capital ratios and are actively evaluating and
developing a number of mitigating actions to protect regulatory capital. Our pro forma Basel III fully loaded Common Equity Tier 1 ratio was 9.7% at 31 December 2012 (including the 2009 Government preference shares). Funding & liquidity The strong momentum achieved in customer deposit
growth in the second half of 2011 continued into 2012 with deposit growth of  2.9 billion during 2012. Total customer deposit balances were  64 billion at the end of 2012, an increase of 5% on 2011, with growth evident across all our continuing franchises. This deposit growth includes the impact of the closures of offshore businesses. These
deposits represent the largest funding source for the bank at 55% of total funding. The banks net loan funding gap decreased to  9.8 billion at the end of 2012 compared to  21.9 billion at the end of 2011 due to progress in deleveraging. Reliance on monetary authorities decreased by  9 billion, or 29%, during 2012 to  22 billion. AIB re-entered the public funding markets in 2012 with the completion of a sterling equivalent of  395 million UK RMBS issuance, and a  500 million 3 year Asset Covered Security issuance, the first of its
type for the bank since June 2007. Both issuances were well supported by the market and reflected improved sentiment from external investors in AIB in 2012.








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|LOGO |  | Chief Executives review |  | 






We issued a further 3.5 year 
500 million Asset Covered Security in January 2013 and plan to continue to access funding markets in a measured and balanced manner in 2013, subject to market conditions. The Groups loan to deposit ratio was 115% at the end of 2012, down from 138% at December 2012. Loans and Asset Quality AIBs gross loan book reduced by  9 billion to  90 billion in 2012, reflecting non-core deleveraging, amortisation and continued muted loan demand.
The ongoing difficult economic environment, particularly in Ireland, continued to impact credit quality. Mortgages remain the largest portfolio at 47% of total
loans. Arrears on the Irish mortgage portfolio increased in 2012 although the pace of increase in arrears slowed when compared with 2011. The  15.3 billion total SME/Commercial portfolio, of which close to 67% is Irish exposure, remained challenged during 2012. Our priority is to support viable
business and protect jobs and a significant amount of refinancing and restructuring of existing facilities occurred to sustain these businesses during the year. There have been recent indications that although asset prices in the Irish commercial property sector continue to fall, prime yields have stabilised. Of the total  22 billion Property and Construction portfolio, c. 62% was impaired at December 2012, with 56% provision cover on these impaired loans. AIB held specific balance sheet provisions of  15.2 billion at end 2012
against impaired loans of  29.4 billion, providing cover of 52% with a further  1.3 billion set aside for losses which we believe are incurred but not yet
reported within our loan book, with balance sheet provisions to total loans at 18% at December 2012. Deleveraging Significant progress has been made in deleveraging non-core assets with 
18.2 billion, including contracted sales, in total achieved since December 2010. As of 31 December 2012, we had achieved 89% of the PLAR non-core deleveraging target of  20.5 billion by December 2013
as set by the Central Bank of Ireland, including these contracted sales. The overall cumulative discounts on non-core deleveraging are within assumptions contained in the Central Bank of Irelands March 2011 Financial Measures Programme. This
has been achieved through disciplined disposal execution despite challenging market conditions and the bank is well placed for achievement of 100% of the total non-core deleveraging plan in 2013. Closing comments Our strategic plan to achieve a return to sustainable
profitability
 during 2014, remains on target. While 2012 was another difficult year for the bank, we have taken a number of important steps to position ourselves for recovery. During 2013, the bank will
continue to focus on improving our overall operating performance including net interest margin expansion; delivery of our cost initiatives; implementing work out strategies for our customers in financial difficulties; focus on balance sheet and
capital optimisation strategies and delivery of improved customer service. We will also initiate a broad sectoral research programme supported by a customer contact initiative to support existing SMEs and future growth sector. I would like to thank our customers, staff and the Irish State for their continued support in this process. David Duffy Chief Executive Officer 26 March 2013








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| |  | Corporate Social Responsibility |  | LOGO






The customer and the community have always been at the very heart of AIBs operations. In spite of the financial
turbulence of recent years, the bank continues to support organisations and activities at cultural, sporting, farming and business level. It is of the utmost importance to AIB that it maintains this focus on its Corporate Social Responsibility
(CSR) activities while adjusting to the rapidly changing market environment. Marketplace Small and Medium Enterprises (SMEs) AIBs
focus for Irelands SME community during 2012 was twofold: supporting business recovery by working with customers in difficulty and supporting growth in jobs by increasing the supply of credit to business. These two key business objectives were
underpinned in 2012 by a highly visible campaign - The Big Drive for Small Business. Credit to support SME growth remained a key business priority
throughout 2012 with the launch of a number of new funds and initiatives to encourage new investment in both traditional and emerging sectors. Some of the highlights included the re-launch of the AIB Start Up Package, the Job Creation Loan Fund and
the establishment of an Emerging Sectors team to work exclusively with export-oriented businesses in the technology sector. AIB has also collaborated with the
Government on a number of initiatives including; the development of a Micro Finance customer offering and support for the Government sponsored Temporary Partial Loan Guarantee Scheme that provides guarantees to viable businesses having problems
obtaining credit. AIB also supported a number of national SME & Agricultural events in 2012 including the national Small Firms Association Awards, the
National Ploughing Championships, the Business and Finance Awards and the annual Dublin Chamber and Small Firms Association business lunches. Support was also given to the Tullamore Show and AIB National Livestock Show where 12 AIB Agri Food
customers availed of the opportunity to showcase their products as part of AIBs exhibition stand. In Northern Ireland, First Trust Bank continued its support
of the Business Finance Taskforce  a group of major banks, co-ordinated by the British Bankers Association, working to help the economy return to sustainable growth. An ongoing practical element of this initiative is the banks
partnership with the Northern Ireland Chamber of Commerces SME Mentoring Scheme; where the bank has provided four experienced business banking mentors to help and guide SMEs who wish to access start-up finance, or develop and grow their
exports. Mortgages AIB continued to actively support mortgage customers
who found themselves in financial difficulty during 2012. In line with AIBs Mortgage Arrears Resolution Strategy, a broader range of forbearance solutions have been developed to provide further support to customers with longer term
difficulties, where appropriate. These are in addition to the short-term forbearance
 solutions already in place for customers since 2011. AIB intends to meet/exceed the recently announced Central Bank of Ireland 2013 sustainable mortgage solution targets as part of its ongoing
efforts to deal effectively and quickly with these customers. 2012 also saw the establishment of a new Mortgage Support Team in First Trust Bank in order to provide
mortgage customers experiencing repayment difficulties with a centralised point of contact. EBS also continued to help customers manage their mortgages and support customers in financial difficulty. Full disclosures in relation to mortgage arrears are contained within the credit risk section of the 2012 Annual Financial Report. People AIB employees experienced another year of significant change in 2012
engaging fully in the strategy to return AIB to profitability. Largely driven by the imperative to cut the banks cost base, the bank launched a Voluntary Severance Programme in May 2012 that will facilitate a reduction of at least 2,500 in
overall staff numbers by March 2014. Following a review of AIBs retail operations, carried out as part of the Groups overall transformation programme,
AIB announced the closure of a total of 67 branches across the Republic of Ireland , to be completed by June 2013. A further 12 branches in Northern Ireland and Great Britain are part of the closure programme. In 2012, the bank also announced that
its operations in Jersey and the Isle of Man would be wound down and cease operating by the end of 2013. AIB continues to engage with its employee representatives, in particular, the Irish Bank Officials Association (IBOA) on a range of
issues. Discussions during the year principally focussed on the Severance Programmes and the ongoing Transformation Programme.  Employee information AIB GroupTotal staff(1):

13,429Average age of employees (years):

39Average Length of Service (years):

13Voluntary Attrition(2):

5.7%Total Voluntary
Attrition(3):

17.9%Permanent/Temporary staff mix:

84% Permanent,16% TemporaryFull-time/ Part-time mix:

91% Full-time9% Part-timeGender mix:

41% Male59% Female(1)Reflects the Full Time Equivalent (FTE) of Staff in Payment (after attrition in the month of December)
and includes staff on paid leave arrangements as at 31 December 2012.(2)Excludes retirements and voluntary severance programme leavers.(3)Includes retirement and voluntary severance programme leavers.








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|LOGO |  | Corporate Social Responsibility |  | 






Community AIB announced the
renewal of its AIB GAA Club Championships Sponsorship for a further 5 years with the 2012/2013 season marking the 21st anniversary of this sponsorship. The bank continued its support of the arts and sponsored the Irish Photojournalism Awards for the
tenth year. These annual awards, run in conjunction with the Press Photographers Association of Ireland recognise, reward and showcase excellence in press photography. The AIB Photojournalism Exhibition travelled to 24 AIB branches around the
country giving access to the exhibition to a wide audience. Supporting a range of causes across the country, AIBs corporate hospitality boxes in Croke Park
and the Aviva Stadium were offered to registered charities in Ireland for their use during the 2011/2012 GAA and rugby seasons. More than 100 charities from around the country availed of the opportunity to attend the fixtures in 2012, including the
Jack & Jill Foundation, Temple Street Childrens Hospital, the Hospice Foundation, St. Vincent de Paul and Share a Dream. During 2012, AIB also
donated 39 key artworks from the AIB Art Collection to the State which are now displayed at the Crawford Art Gallery in Cork. In addition to this donation, up to a further one thousand pieces are to be made available to the State, for loan to
museums and art galleries throughout Ireland. Allied Irish Bank (GB) has supported the London Irish Rugby Football Club Academy for over ten years in its community programme. The programme promotes education, social inclusion, teamwork and active
lifestyles through the creation of rugby related programmes. In 2012 it delivered approximately 1,000 hours of coaching across 100 schools and provided 750 hours of coaching to amateur clubs. First Trust Bank in Northern Ireland had a highlight to their ongoing support of the Young Enterprise Award Scheme, when the team coached by the Lisburn branch won the
NI Young Enterprise Company of the Year Award, going on to represent the province at a UK level. EBS was also very active in the community and supported a number of
initiatives during 2012. Key amongst these were the EBS Community Fund, which continues to make a community fund available for community groups, clubs and projects that are active in their local communities. 2012 also marked the twentieth year of
EBS involvement in the EBS INTO Handwriting competition. All national schools throughout Ireland were invited to enter the competition which saw over 100,000 entries received. Environment AIB remains committed to sustainability, striving to reduce carbon
output across all aspects of its business, with an aim to achieve a 33 % improvement in energy efficiency by 2020. This is in accordance with obligations under the National Energy Efficiency Action Plan (2009  2020). In 2012, AIB sought to implement a performance contract for
 energy reduction across its Head Office estate through a partnership with an Energy Service Company (ESCo). A grant from the Sustainable Energy Authority of Ireland, through the Better Energy
Workplaces scheme, was proposed but not drawn-down. 2013 will see AIB pursue alternative partnering strategies in this arena. AIB implemented a number of other
energy management projects during 2012 to reduce energy consumption and to improve energy efficiency, including the procurement of green energy wherever feasible. In this regard AIB engaged a new electricity supplier, Energia, to commence the
provision of 100% green electricity for all AIB locations in the Republic of Ireland. During 2012 AIB also made its annual return to the Carbon Disclosure Project,
achieving an overall score of 79%. This is an improvement from the 41% scored on the 2011 submission and means that AIB qualified for the first time as a Carbon Leader, exceeding the requisite score of 75%.








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Page1.

Business description1.1

History


121.2

Developments in recent years


121.3

The businesses of AIB Group


131.4

Strategy


141.5

Restructured business of AIB Group


151.6

Competition


161.7

Economic conditions affecting the Group


162.

Financial data


183.

Management report


214.

Capital management


435.

Critical accounting policies and estimates


456.

Deposits and short term borrowings


497.

Financial investments available for sale


538.

Financial investments held to maturity


559.

Contractual obligations


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1.1 History The AIB parent company, Allied Irish Banks, p.l.c., originally named Allied Irish Banks Limited, was incorporated in Ireland in September 1966 as a result of the
amalgamation of three long established banks: the Munster and Leinster Bank Limited (established 1885), the Provincial Bank of Ireland Limited (established 1825) and the Royal Bank of Ireland Limited (established 1836). In December 1983, AIB acquired 43% of the outstanding shares of First Maryland Bankcorp (FMB). In 1989, AIB completed the acquisition of 100% of the
outstanding shares of common stock of FMB. During the 1990s, there were a number of bolt-on acquisitions, the most notable being Dauphin Deposit Bank and Trust Company, a Pennsylvania chartered commercial bank which was acquired in 1997.
Subsequently, all banking operations were merged into Allfirst Bank. In 2003, Allfirst was integrated with M&T Bank Corporation (M&T). Under the terms of the agreement AIB received 26.7 million shares in M&T,
representing a stake of approximately 22.5%. in the enlarged M&T, together with US$ 886.1 million cash, of which US$ 865 million was received by way of a pre-sale dividend from Allfirst Bank. AIB entered the Polish market in 1995, when it acquired a non-controlling interest in Wielkopolski Bank Kredytowy S.A. (WBK). In September 1999, it completed
the acquisition of an 80%. shareholding in Bank Zachodni S.A. (Bank Zachodni) from the State Treasury. In June 2001, WBK merged with Bank Zachodni to form BZWBK, following which the Group held a 70.5%. interest in the newly-merged
entity. The Groups interest in BZWBK decreased to approximately 70.36%. when BZWBKs share capital was increased in 2009. In October 1996, AIBs
retail operations in the United Kingdom were integrated and the enlarged entity was renamed AIB Group (UK) p.l.c. with two distinct trading names, First Trust Bank in Northern Ireland and Allied Irish Bank (GB) in Great Britain. In January 2006, Aviva Life & Pensions Ireland Limited and AIBs life assurance subsidiary, Ark Life, were brought together under a holding company Aviva
Life Holdings Ireland Limited (ALH), formerly Hibernian Life Holdings Limited. This resulted in AIB owning an interest of 24.99% in ALH. Following this, AIB entered into an exclusive agreement to distribute the life and pensions products
of the venture. 1.2 Developments in Recent Years A key element of AIBs pre-crisis market positioning was its involvement in the Irish property sector, which was the fastest growing segment of the Irish economy.
From the late 1990s to 2006, the mortgage market in Ireland expanded rapidly as housing prices soared, driven in part by economic and wage growth and a low interest rate environment. The global financial system began to experience difficulties in mid-2007. This resulted in severe dislocation of international financial markets around the world,
unprecedented levels of illiquidity in the global capital markets and significant declines in
 the values of nearly all asset classes. Governments throughout the world took action to support their financial systems and banks, given the critical role which properly functioning financial
systems and banks play in economies. Global financial market conditions triggered a substantial deterioration in domestic economic conditions and property values.
In 2008, as the Irish economy started to decline and as interest rates continued to increase, housing oversupply persisted and mortgage delinquencies increased. Declining residential and commercial property prices also led to a significant slowdown
in the construction sector in Ireland. As a result, loan impairments in the Irish construction and property and residential mortgage sectors, to which AIB was heavily exposed, increased substantially. These dynamics began to present funding and
liquidity issues for AIB as well as a rapid deterioration in the Groups capital base. The Irish Government recognised the pressing need to stabilise Irish
financial institutions and to create greater certainty for all stakeholders. A number of measures were implemented by the Irish Government in response to the continuing crisis. These measures were taken to enhance the availability of liquidity and
improve access to funding for AIB and other systemically important financial institutions in Ireland. The first action was the establishment of the Credit Institutions (Financial Support) (CIFS) Scheme on 30 September 2008, by which
the Minister for Finance guaranteed certain liabilities of covered institutions, including AIB, until 29 September 2010. This was followed by the  3.5
billion subscription by the National Pension Reserve Fund Commission (NPRFC) on 13 May 2009 for the 2009 Preference Shares and 2009 Warrants. Subsequently, the Minister for Finance established the Credit Institutions (Eligible
Liabilities Guarantee) (ELG) Scheme in December 2009 which facilitates participating institutions issuing debt securities and taking deposits during an issuance window and with a maximum maturity of 5 years. AIB joined the ELG Scheme on 21 January 2010. However, on 26 February 2013, the Minister for Finance announced that the ELG Scheme will end for all new
liabilities with effect from midnight on 28 March 2013. After this date, no new liabilities will be guaranteed under this Scheme. In December 2009 the Irish Government established the National Asset Management Agency (NAMA) which
has acquired certain performing and non-performing land and development and associated loans from participating banks, with the aim of freeing up banks balance sheets and facilitating the easier flow of credit throughout the Irish economy. AIB
has transferred approximately  20 billion of assets to NAMA. The
original Prudential Capital Assessment Review (PCAR) announced by the Central Bank of Ireland (the Central Bank) on 30 March 2010 imposed a requirement for AIB, among other credit institutions, to strengthen and increase
its capital base to help restore confidence in the Irish banking sector. The PCAR assessed the capital requirement of AIB and other Irish credit institutions in the context of expected losses and other financial developments, under both base and
stress-case scenarios, over the period from 2010 to 2012.








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Following the results of the original PCAR exercise, AIB disposed of its stake in M&T on 4 November 2010, a
transaction which generated core tier 1 capital of  0.9 billion. AIB announced, on 10 September 2010, the sale of its Polish interests to Banco
Santander S.A. for a total cash consideration of  3.1 billion. This transaction completed on 1 April 2011 and AIB generated core tier 1 capital of approximately
 2.3 billion as a result of the disposal. AIB also disposed of Goodbody Holdings Limited; AIB International Financial Services Limited; AIB Jerseytrust Limited; and its 49.99% shareholding in
Bulgarian-American Credit Bank ; AIB Asset Management Holdings (Ireland) Limited, including AIB Investment Managers. On 23 December 2010, a direction order
under the Credit Institutions (Stabilisation) Act 2010 with the consent of AIB, directed AIB to issue  3.8 billion of new equity capital to the NPRFC. This
also resulted in the delisting of AIBs ordinary shares from both the Main Securities Market of the Irish Stock Exchange and from the Official List maintained by the UK Financial Services Authority. AIBs ordinary shares were subsequently
admitted, in January 2011, to the Enterprise Securities Market of the Irish Stock Exchange. Furthermore, AIB announced in August 2011 that its American Depository Shares (ADSs) were delisted and have ceased to be traded on the New York
Stock Exchange. On 24 February 2011, AIB acquired deposits of  7
billion and NAMA senior bonds with a nominal value of  12 billion from Anglo Irish Bank, pursuant to a transfer order issued by the High Court under the Credit Institutions (Stabilisation) Act 2010. AIB
also acquired Anglo Irish Bank Corporation (International) PLC in the Isle of Man, including customer deposits of almost  1.6 billion. On 1 July 2011, as part of the restructuring of the Irish banking system, AIB completed the acquisition of EBS for a nominal cash payment of  1.00. EBS had  19.2 billion of total assets, approximately  16.0
billion of customer loans and  10.1 billion of customer deposits at this date. This transaction represented a significant consolidation within the Irish banking sector, resulting in the formation of one
of two pillar banks in Ireland. On 31 March 2011, the Central Bank published its Financial Measures Programme Report, which detailed the outcome of PCAR 2011 and Prudential Liquidity Assessment Review (PLAR) 2011 for
certain Irish credit institutions, including AIB and EBS. On this date, the Central Bank stated that it had set a new capital target for AIB and EBS, ultimately
requiring AIB and EBS to generate a total of  14.8 billion of additional capital. This additional capital requirement was satisfied through AIBs
placing of  5.0 billion of new ordinary shares with the NPRFC, capital contributions totalling  6.1 billion from the Minister for Finance and the NPRFC, the
issue of  1.6 billion of contingent capital notes at par to the Minister (which completed on 27 July 2011), and further burden-sharing measures undertaken with the Groups subordinated
debt-holders. Following these actions, the State, through the NPRFC, now owns 99.8% of the ordinary shares of AIB.
 1.3 The businesses of AIB Group During 2012, the business of AIB Group was conducted through four major operating market segments namely: Personal and Business Banking (PBB), Corporate
Institutional and Commercial Banking (CICB), EBS and AIB UK which are described below. In addition, the Group also operated a Non-Core unit. Personal & Business Banking AIBs Personal and Business Banking
(PBB) segment was created in 2011 to service the personal and small business customers of AIB, in addition to including wealth management and credit card services. PBB commanded a strong presence in all key sectors including SME,
mortgages and personal banking. It provided: 
A range of delivery channels consisting of approximately 200 branches/outlets, c. 740 ATMs and AIB Phone and Internet Banking as well as an alliance with An Post which provides AIB customers with banking services at
over 1,000 post offices nationwide. 
A wide range of banking services 
A choice of payment methods including cheques, debit and credit cards, self service and automated domestic and international payments. AIB is the principal banker to many leading public and private companies and government bodies, and plays an important role in Irelands economic and social
development. AIB is a founding member of the Irish Payments Services Organisation (IPSO) and is a member of the Irish Clearing Systems for paper, electronic and real-time gross settlement (RTGS). During 2012, the main
distribution channel for PBB was an extensive branch network, structured around meeting personal and business banking needs. Complementing the AIB Branch channel is
the AIB Direct Channels operation (leading Irish online banking service), offering self service capability through telephone, internet, mobile, ATM, self service kiosks and automated payments. The Wealth Management unit delivers wealth propositions to AIB customers, tailored to the needs of specific customer segments. AIB Card Services provides credit and debit card products to all AIB customers, supporting payment and consumer credit requirements. The products are delivered across
all channels. AIB has a joint venture with Firs Data International, trading as AIB Merchant Services, which provides access for merchant and partners in the merchant acquiring business. Corporate, Institutional & Commercial Banking Corporate,
Institutional and Commercial Banking (CICB), was created in 2011 to service large and medium-sized enterprises in the Republic of Ireland, United Kingdom, and the United States in addition to Treasury Services, Corporate Finance and
Asset Finance. During 2012, CICB supported the business customer through Corporate and Institutional banking (C&I) and Commercial Banking.








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C&I provided a fully integrated relationship-based banking service to top-tier companies, both domestic and
international, including financial institutions, Irish Commercial State companies and large multinationals. C&Is activities also included participating in, developing and arranging acquisition, project and property finance primarily in
Ireland. Commercial Banking provided a fully integrated relationship banking service to medium sized enterprises in Ireland. Commercial Banking operated out of 14
commercial centres across the republic and had a strong presence in all key SME sectors. AIB Finance and Leasing and AIB Commercial Services are the asset finance
arm of AIB. Services include leasing, hire purchase and invoice discounting delivered via the branch network, direct sales force, broker intermediaries, relationship managers or the internet. Customer Treasury Services provided a wide range of treasury, risk management, payments and import and export related financial services to corporate, commercial and
retail customers of the Group. EBS On 1 July 2011, EBS Building
Society converted into EBS Limited (EBS) and became part of the AIB Group. While the two institutions together form one of the two pillar banks in Ireland, EBS operates as a separately branded subsidiary of AIB with its own banking
licence. EBS operates in the Republic of Ireland and has a countrywide network of 82 branches - 68 agency branches and 14 owned branches. EBSs network gives it a physical presence in communities across Ireland which is important in allowing it to provide a high quality personal service to its
customers. EBS also has an online distribution capability through EBS Direct, a direct telephone channel and www.ebs.ie. EBS offers
residential mortgages and savings products, bancassurance, personal banking and general insurance products on an agency basis. AIB UK The AIB UK market segment operates in two distinct markets, Great Britain and Northern Ireland, with different economies and operating environments. The market
segments activities are carried out primarily through AIB Group (UK) p.l.c., a bank registered in the UK and regulated by the Financial Services Authority (FSA). Great Britain In this market, the segment operates under the trading
name Allied Irish Bank (GB) from 22 full service branches. The head office is located in Mayfair, London with a processing centre based in Belfast. A full service is offered to business customers, professionals, and high net worth individuals. Allied Irish Bank (GB) is positioned as a specialist business
 bank, providing a relationship focused alternative to UK high street banks. The bank offers a full range of banking services, including daily banking, deposits solutions, corporate banking and
international management and personal banking offerings, delivered through the traditional branch network and online banking systems. Allied Irish Bank (GB)s relationship approach has been supported by external research in 2012. This included
winning Best Business Fixed Account Provider from the Business Moneyfacts Awards 2012. The banks commitment to staff development has consistently achieved the recognition of the Investors in People (IiP) standard since 1995. Northern Ireland In this market, the segment operates under the trading
name First Trust Bank from 43 branches and outlets in Northern Ireland. The First Trust Bank head office is located in Belfast, together with a processing centre. A
full service, including internet and telephone banking is offered to business and personal customers across the range of customer segments, including professionals and high net worth individuals, small and medium enterprises, as well as the public
and corporate sectors. Specialist services, including mortgages, credit cards, invoice discounting and asset finance are based in Belfast and delivered throughout
the market segment. First Trust Bank is strongly rooted in the communities which it serves and supports a wide range of business, community and charitable
initiatives, with strong links to the education sector in Northern Ireland. Non-Core  Transaction and Asset Management teams During 2012, the key responsibility of the Non-Core unit was to implement the deleveraging plan, which is to deliver the deleveraging of 20.5 billion of assets identified by AIB as non-core by year end 2013. 1.4 Strategy AIB is continuing its focus of returning to sustainable profitability during 2014 and in ensuring it meaningfully contributes to the recovery of
the Irish economy. As part of these goals, AIB made significant progress in 2012 in setting out a revised strategy aimed at materially reducing operating costs while enhancing income generation aligned to prudent and risk adjusted lending practices.
The overall Group strategy is comprised of the following key elements: Customer focus AIB began to organise its internal structure in the latter half of 2012 to a more customer centric model. AIB will operate in 2013 around three key segments  the
Domestic Core Bank, AIB UK comprising the businesses in Great Britain ( AIB GB) and Northern Ireland (FTB), and the newly created Financial Solutions Group. The Domestic Core Bank is organised around Personal, Business and Corporate Banking and an integrated Products area. Key areas of focus for the Domestic Core Bank
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aligned to the Groups deposit platform. EBS will continue to operate as a separate brand within the Domestic Core Bank and will maintain its own distribution network focused most
particularly on deposit products and mortgage lending. The process of streamlining EBS operations to remove duplication with AIBs systems is ongoing with progress to date. The customer proposition at First Trust Bank is being aligned with the
approach in the Core Domestic Bank. AIB GB continues to focus on SMEs, owner managed businesses, and professional firms with a significant emphasis on facilitating trade in both directions between Ireland and Britain. Each of the segments is
underpinned by an integrated set of support and control functions to drive efficiencies across the organisation. AIBs distribution capability is being
enhanced to ensure the Group is meeting the requirements of customers across the full spectrum of its business. In addition to the increase of services available through AIBs online and mobile platform, the Group has introduced mobile
community banks, a number of self service banking lobbies and is continuing to increase the number of Intelligent Deposit Devices in branches which are designed to reduce waiting times for everyday banking transactions. In locations in the Republic
of Ireland, where AIB has recently closed branches, an enhanced agreement with An Post (the Irish postal service) is providing additional banking services for affected customers. AIB will continue to adjust the size and scope of its physical
distribution network as appropriate. AIB is fully committed to supporting customers in financial difficulty and fully recognises the critical imperative to deliver
timely solutions for customers. The creation of the Financial Solutions Group means that the Group has a unit dedicated to the overall management of this critical area. The Group continues to stress the need for early, open engagement from customers
as it is mutually beneficial for both the Group and customers to manage these issues in a constructive way. For SME customers in financial difficulty, the approach is to restore immediate customer stability, restructure loans where required and
establish a path back to viability. For mortgage customers in financial difficulty, the strategy is to work to ensure that homeowners who are co-operating with the bank and prioritising mortgage repayments can remain in their home, where possible.
As part of the Groups Mortgage Arrears Resolution Strategy (MARS), AIB is providing both short term and long term solutions for customers. A
return to sustainable profitability during 2014 A renewed focus on income growth coupled with cost management measures will help AIB to achieve the goal of a
return to sustainable profitability during 2014. As part of an overall cost reduction agenda, AIB is well advanced in the implementation of a Voluntary Severance Programme which will reduce the number of staff at AIB by at least 2,500 by 2014. Among
other measures, the bank has also made changes to staff pay and benefits including pay cuts at senior levels and it is proposed that all employees who are members of a defined benefit pension scheme will be transferred to a defined contribution
pension model. Changes to the Groups operating cost base are ongoing, the positive effects of which will be more
 evident in the Groups 2013 and 2014 financial statements. In addition to cost reductions, the Group is taking necessary decisions to drive income growth including focus on funding costs and
adjusting the pricing and number of lending products to be more in line with cost of funding. The Group is focused on ensuring it plays a critical role in Irelands economic recovery and in maintaining market share in key target markets namely,
mortgages, SME and corporates and will focus more closely on balance sheet management and capital allocation. AIB is also fully prepared for the removal of ELG which will have a positive impact on operating performance over time. Emphasising technology and innovation AIB is using technology to better
meet the evolving needs of customers. Through the development of an integrated online, phone and physical branch distribution network, AIBs systems will deliver high quality services to customers. AIB has made significant progress in the
implementation of these processes already and customers will continue to see greater flexibility in the future in the range of products available to them online, over the phone and in their local branch. Focus on leadership, governance and risk control environment AIB has
implemented changes to its overall governance and risk control environment across both the main business and support functions. As part of this AIB has recruited several new members to its Leadership team, comprising individuals who bring experience
and external knowledge to the Group. This team is supported by a Leadership Council comprised of senior management individuals from all areas of the Group. Maintaining strong relationships with key stakeholders AIB is a
functioning bank today because of the support provided by the State and by extension the Irish taxpayer. AIB fully recognises the critical role the Group has in contributing to economic recovery and as such AIB is in constant dialogue with the
Department of Finance, the Central Bank of Ireland and the EU/IMF/ECB (Troika) as it seeks to rebuild the reputation of the Group and return to sustainable profitability. The Minister for Finance specified a Relationship Framework
Document in March 2012 which ensures the Board and Leadership Team are in a position to manage the Group on a commercial basis. Additionally, AIB is committed to engaging with debt and equity investors in a transparent, measured and balanced manner
over time as the Group emerges from its financial difficulties. 1.5 The restructured business of AIB Group In 2013, a new operating structure will better align the organisation to the Groups revised strategy. The key segments of the new structure are as follows: Domestic Core Bank comprising: (i) Personal, Business and Corporate
Banking AIBs Personal, Business and Corporate Banking (PBCB) area will service the Irish personal, business and corporate customers of AIB in addition
to including wealth management services. This segment now reflects the amalgamation of the customers and distribution aspects of Personal & Business Banking, EBS and Corporate, Institutional and Commercial Banking segments.








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(ii) Products AIBs
products segment was created as part of the new operating structure. The Products segment will seek to provide a portfolio of banking products that are appropriately priced, striking a balance between customer value and an appropriate return for the
Bank. Financial Solutions Group The Financial Solutions Group
(FSG), is a unit dedicated to supporting business and personal customers in financial difficulties. The units emphasis is on early, open
engagement as it is mutually beneficial for the Group and customers to manage issues in a constructive way. The key component of the FSG strategy is to return customers in difficulty to regular banking coverage over time. AIB UK The structure of the AIB UK business remains unchanged. Group Support Functions The support functions of AIB Group are Risk, Chief
Operating Office, Finance, Legal, Audit, Human Resources and Corporate Affairs and Strategy. 1.6 Competition Republic of Ireland Competition in the retail banking sector in the Republic of
Ireland has undergone a significant transformation in light of the recent economic crisis with a resultant change in both operating models and behaviours. The economic crisis and resultant banking crisis has led to both Government and European
intervention through Government sponsored bank guarantee schemes, the recapitalisation of many banks operating in Ireland (both domestic and foreign), the provision of substantial Government financial support across the majority of domestic
institutions as well as the transfer of property related assets to the National Asset Management Agency. There continues to be a limited demand for banking products
and services in both the personal and business markets due to muted domestic demand. Activity in the mortgage market continues to be limited although 2012 activity was ahead of 2011 market levels. In addition, consumers continue to pay down debt and
focus on saving disposable income. The focus of retail banking continues to be to provide credit to customers, in particular SMEs and mortgages to support
stimulation of economic turnaround, as well as retention and gathering of deposits. Deposits pricing continues to be competitive although market pricing levels have declined from unsustainable rates. UK The UK economy has had limited growth over the past two years, as it has
battled amidst a global economic crisis and a sharp squeeze in domestic spending power. Concerns over Ireland and Irish banks have had an adverse impact on Irish banks operating in the UK market.
 While public concern in the UK regarding the stability of the Irish banking system continued in 2012, there was also
increased focus on Europe and on those countries which have required financial support. The euro and speculation around its longevity also remained in focus. Irelands state authorities prolonged the ELG Scheme, which was put in place to safeguard all eligible deposits with Irelands guaranteed banks (including
their UK operations). During 2011, the positive impact of this guarantee was evident as the level of withdrawals from Irish banks operating in the UK market was less evident than in 2010. As the market returned to a level of normality AIB Group (UK)
p.l.c. decided, with the approval of the Irish Government and agreement from the Financial Services Authority (FSA), to withdraw from the ELG Scheme in August 2012. The focus of activity in a very competitive UK retail market continues to be on maintaining close customer relationships so as to retain existing and attract new
deposits and more recently to increase levels of lending as the Group strives towards recovery 1.7 Economic conditions affecting the
Group AIBs activities in Ireland accounted for the bulk of the Groups business. As a result, the performance of the Irish economy is extremely
important to the Group. The Group also continues to operate significant business in the United Kingdom, which means that it is also influenced directly by political, economic and financial developments there. The world economy went into deep recession in early 2008. It has been recovering since around the middle of 2009, but at a moderate and uneven pace. Indeed, some
economies lapsed back into recession last year, most notably the Eurozone and UK. World GDP is estimated by the International Monetary Fund in its latest World Economic Update (January 2013) to have expanded by 3.2% in 2012, down from 3.9% in 2011.
This compares to average GDP growth of 5% in the period 2004-2007 (Source: IMF World Economic Outlook, October 2012, Table A1). The United States, the United
Kingdom and the Eurozone are Irelands three most important trading partners. A moderate recovery in activity had been underway in all three economies, but while modest growth has continued in the US, the UK and Eurozone fell back into mild
recession last year. US GDP is estimated by the IMF to have grown by 2.3% in 2012 following growth of 1.8% in 2011, with the IMF forecasting growth of 2.1% for
2013. Similar growth forecasts for the US were published in November by the OECD in its Economic Outlook. Meanwhile, GDP in the United Kingdom rose by 0.2% last year after growth of 0.8% in 2011, and the OECD is forecasting UK GDP growth of 0.9% for
2013. For the Eurozone, GDP is estimated by Eurostat to have fallen by 0.5% last year after growth of 1.5% in 2011. Another decline in GDP is expected in 2013, with the ECB predicting in its March 2013 Economic Forecasts that eurozone GDP will
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According to Irelands CSOs National Income and Expenditure (NIE) 2011 publication, real GDP in
Ireland rose by 1.4% in 2011. This followed three years of declines in GDP of 0.8% in 2010, 5.5% in 2009 and 2.1% in 2008. The pick up in growth in 2011 was largely due to exports as domestic demand continued to contract in that year. National
Accounts data published by the CSO (21 March 2013) for 2012 show that GDP rose by 0.9% last year. The pace of contraction in the domestic sector of the economy eased considerably during 2012. While exports continued to grow last year, it was at a
slower pace than in 2011, largely due to the weakness of external demand. Another modest rise in GDP of around 1.0-1.5% is expected in 2013, helped by continued
modest growth in exports. GDP growth is forecast to pick up thereafter to a 2.5% - 3% range (Source: Department of Finance Budget 2013). The recovery in
exports has led to a marked turnaround in the balance of payments. According to CSO data, Ireland recorded a balance of payments surplus on the current account of
 1.78 billion in both 2010 and 2011, the first such surpluses since 1999. This compares with current account deficits of over
10 billion in 2007 and 2008 and  3.7 billion in 2009. CSO data for 2012 show a marked rise in the current account surplus last year (Source: CSO Balance of
Payments 2012). The current account surplus rose to over  8 billion in 2012, or 5% of GDP. Credit growth remained weak
in Ireland in 2012. Total household loans outstanding were down 3.9% year-on-year at end December 2012, while lending for house purchase fell by 1.6% in the same period (Source: Central Bank of Ireland, Money and Banking Statistics December 2012).
House prices were down by 4.5% year-on-year at end December according to the CSO house price index, although house prices did rise modestly in the second half of the year (Source: CSO Residential Property Price Index, December 2012). Overall, the
housing market showed signs of stabilising last year, albeit at low activity levels, with increases in mortgage approvals and transactions, as well as more stable prices. Given the deep recession, labour market conditions have weakened significantly in Ireland since 2007. Employment fell sharply in the period 2008-2011 according to CSO
data, but there were signs of stabilisation in 2012. Employment fell 0.6% last year but, by the final quarter, employment was showing a slight rise of 0.1% year-on-year (Source: CSO Quarterly National Household Survey Q4 2012). The labour force
continued to contract, while CSO data also show that the unemployment rate edged down last year, declining from 15% in Q1 to 14.2% by Q4 2012 (Source: CSO Quarterly National Household Survey Q4 2012). The European Central Bank, which has responsibility for monetary policy in the Euro area as a whole, cut the official refinancing rate to 1% in May 2009 from a peak of
4.25% in July 2008. It then raised rates by 25bps points in both April and July 2011 in response to rising inflationary pressures.
 However, it reversed these two rates hikes in the final two months of 2011, bringing the refi rate back down to 1%. It
reduced the refi rate by a further 25bps to 0.75% in July 2012. The Irish public finances deteriorated sharply during the recession, moving into large deficit due
to the very sharp fall in tax revenues largely associated with the downturn in the Irish housing market. The budget in 2010 stabilised the underlying deficit at some 11% of GDP. In 2011 the deficit fell to just over 9% of GDP, with the budget
deficit declining further in 2012 to around 8%. Further fiscal tightening is being implemented in 2013 with the budget deficit forecast to fall to 7.5% of GDP. Further corrective actions will be necessary to reduce the deficit to below 3% of GDP by
2015 (Source: Dept of Finance, Budget 2013). The Irish General Government debt/GDP ratio fell steadily from over 95% in 1991 to 25% by 2007 (Source: NTMA, Ireland
Information Memorandum March 2008). However, as a result of higher budget deficits and falling levels of GDP, Irelands General Government debt/GDP ratio is estimated by the Department of Finance (Budget 2013) to have climbed to 118% of GDP at
end 2012, up from 106% in 2011 and 93% in 2010. As highlighted by the Department of Finance, allowing for the high Exchequer cash balances and deposits, it would bring down the debt ratio to 106% at end 2012. There has been a marked improvement in market sentiment towards Ireland since the middle of 2011, with a consequent sharp drop in yields on Irish government bonds.
Yields on the Irish 5 year bond, which peaked at close to 20% in July 2011, fell to close on 3% in the second half of 2012. Meanwhile, the yield on the 5% 2020 bond fell from 14% to some 4.5% over the same period. (Source: Thomson Datastream).
Despite, these developments, Irelands long-term sovereign credit ratings remain low, standing at BBB+ from S&P and Fitch, and Ba1 by Moodys at end 2012. Both S&P and Fitch, though, have raised the outlook on their BBB+ rating for
Ireland from negative to stable.









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The financial information in the tables below for the years ended 31 December 2012, 2011, 2010, 2009 and 2008 has been
derived from the audited consolidated financial statements of AIB Group for those periods. AIB Groups consolidated financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) as issued by
the International Accounting Standards Board (IASB) and IFRS as adopted by the European Union (EU). The EU adopted version of IAS 39 currently relaxes some of the hedge accounting rules in IAS 39 Financial
Instruments: Recognition and Measurement.The Group has not availed of these, therefore, these financial statements comply with both IFRS as issued by the IASB and IFRS as adopted by the EU. This information should be read in conjunction
with, and is qualified by reference to, the accounting policies adopted, the consolidated financial statements of AIB Group and notes therein for the years ended 31 December 2012, 2011 and 2010 included in this Annual Financial Report. The
summary of consolidated income statement represents the results of continuing operations, where the results of Bank Zachodni WBK S.A. (BZWBK), M&T Bank Corporation and Bulgarian American Credit Bank AD as applicable, are accounted
for as discontinued operations net of taxation for all relevant years. Summary of consolidated income statement  Years ended 31 December2012




2011




2010




2009




2008 m




 m




 m




 m




 mNet interest income


1,106





1,350





1,844





2,872





3,392Other (loss)/income


(485
)




2,990





(5,201
)




1,234





749Total operating income/(loss)


621





4,340





(3,357
)




4,106





4,141Total operating expenses


(1,937
)




(1,720
)




(1,649
)




(1,522
)




(1,885)Operating (loss)/profit before provisions


(1,316
)




2,620





(5,006
)




2,584





2,256Provisions


(2,529
)




(7,728
)




(7,118
)




(5,267
)




(1,749)Operating (loss)/profit


(3,845
)




(5,108
)




(12,124
)




(2,683
)




507Associated undertakings


10





(37
)




18





(3
)




2Profit/(loss) on disposal of property


2





(1
)




46





23





10Construction contract income




















1





12Profit/(loss) on disposal of businesses(1)


3





38





(11
)










106(Loss)/profit before taxation from continuing operations


(3,830
)




(5,108
)




(12,071
)




(2,662
)




637Income tax credit/(expense) from continuing operations


183





1,188





1,710





373





(69)(Loss)/profit after taxation from continuing operations


(3,647
)




(3,920
)




(10,361
)




(2,289
)




568Discontinued operations, net of taxation








1,628





199





(45
)




322(Loss)/profit for the year


(3,647
)




(2,292
)




(10,162
)




(2,334
)




890Non-controlling interests from discontinued operations








(20
)




(70
)




(79
)




(118)Distributions to RCI holders(2)




















(44
)




(38)(Loss)/profit for the year attributable to owners of the parent


(3,647
)




(2,312
)




(10,232
)




(2,457
)




734Basic (loss)/earnings per ordinary/CNVshare(3)Continuing operations


(0.7
c)




(1.6
c)




(571.1
c)




(203.5
c)




54.8cDiscontinued operations








0.7
c




7.1
c




(11.7
c)




28.6c(0.7
c)




(0.9
c)




(564.0
c)




(215.2
c)




83.4cDiluted (loss)/earnings per ordinary/CNV share(3)Continuing operations


(0.7
c)




(1.6
c)




(571.1
c)




(203.5
c)




54.7cDiscontinued operations








0.7
c




7.1
c




(11.7
c)




28.6c(0.7
c)




(0.9
c)




(564.0
c)




(215.2
c)




83.3cDividends


























81.8c








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Selected consolidated statement of financial position data  Years ended 31 December2012


2011


2010


2009


2008 m


 m


 m


 m


 mTotal assets




122,516



136,651



145,222



174,314



182,174Loans and receivables to banks and customers(4)




75,886



88,258



91,212



131,464



135,755Deposits by central banks and banks, customer accounts and debt securities in issue




102,718



113,218



117,922



147,940



155,996 1.6bn Contingent Capital Tier 2 Notes due2016(5)




1,237



1,177











Dated loan capital




34



32



3,996



4,261



2,970Undated loan capital












197



189



692Other capital instruments












138



136



864Non-controlling interests in subsidiaries












690



626



1,344Shareholders funds: other equity interests












239



389



497Shareholders equity(6)




11,241



14,463



3,420



10,320



8,472Total capital resources




12,512



15,672



8,680



15,921



14,839Years ended 31 December2012


2011


2010


2009


2008m


m


m


m


mShare capital - ordinary sharesNumber of shares outstanding




517,152.8



513,528.8



1,791.6



918.4



918.4Nominal value of  0.01 per share (2010:  0.32 per share)




 5,171



 5,135



 573



 294



 294Share capital - convertible non-voting shares(3)Number of shares outstanding












10,489.9







Nominal value of  0.32 per share












3,357







2009 Preference shares(7)Number of shares outstanding




3,500



3,500



3,500



3,500



Nominal value of  0.01 per share




 35



 35



 35



 35












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Selected consolidated statement of financial position data (continued) Other financial data(8)  Years ended 31 December2012%


2011%


2010
%


2009
%


2008
%Return on average total assets


(2.76
)


(1.66
)


(6.21
)


(1.29
)


0.47Return on average ordinary shareholders equity


(37.0
)


(48.8
)


(222.5
)


(24.8
)


8.2Dividend payout ratio


















36.8Average ordinary shareholders equity as a percentage of average total assets


7.5



5.8



2.8



4.3



4.8Year end impairment provisions as a percentage of total loans to customers:(4)Total Group


18.4



15.1



7.1



5.5



1.7Continuing operations


18.4



15.1



7.4



5.5



1.7Net interest margin(9)


0.91



1.03



1.49



1.92



2.21Core tier 1 capital ratio(10)(11)


15.1



17.9



4.0



7.9



5.8Total capital ratio(10)(11)


17.6



20.5



9.2



10.2



10.5 (1)The profit of  3 million on disposal of businesses in 2012 related to the sale of AIB Asset Management Holdings (Ireland) Limited -
 2 million (tax charge: Nil) and the sale of an Offshore subsidiary -  1 million (tax charge: Nil). The profit on disposal of businesses in 2011 relates to (a) AIB International Financial Services Limited and related companies  27 million (tax charge Nil); (b) AIB Jerseytrust Limited  10 million (tax charge Nil); and
(c) deferred consideration of  1 million from the sale of Goodbody Holdings Limited in 2010 (note 15). The loss on disposal of businesses in 2010 of 
11 million relates to the sale of AIBs investment in Goodbody Holdings Limited and related companies (note 15). The profit on disposal of
businesses in 2008 of  106 million relates to a joint venture with First Data Corporation. (2)The distributions in 2009 and 2008 relate to the Reserve Capital Instruments
(note 48). (3)Convertible non-voting shares issued to the NPRFC on
23 December 2010 ranked equally with ordinary shares and were convertible into ordinary shares on a one to one basis. These converted to ordinary shares in April 2011 (note 45). (4)Loans and receivables to customers included loans and receivables held for sale
to NAMA in 2009 and 2010. (5)Relates to the issue of  1.6 billion in Contingent Capital Notes to the NPRFC during 2011 (note 44). (6)Includes ordinary shareholders equity (in July 2011, 500 billion ordinary
shares were issued to the NPRFC at a subscription price of  0.01 per share) (note 45), the 3,500 million 2009 Preference Shares issued to the
NPRFC in May 2009 (note 45) and the convertible non-voting shares issued to the NPRFC on the 23 December 2010 which converted to ordinary shares in April 2011 (note 45). (7)2009 Preference Shares issued to the NPRFC on 13 May 2009. (8)The calculation of the average balances includes daily and monthly averages and
are considered to be representative of the operations of the Group. (9)Net
interest margin represents net interest income as a percentage of average interest earning assets. The net interest margin is presented on a continuing basis for 2012, 2011, 2010 and 2009 and presented on a total Group basis for 2008. (10)The minimum regulatory capital requirements set by the Central Bank, which
reflect the requirements of the Capital Requirements Directive (CRD), establish a floor of 4% under which the core tier 1 capital ratio must not fall (8% for total capital ratio). These ratios were the capital adequacy requirements
effective as at 31 December 2010. Following the Prudential Capital Assessment Review (PCAR) in March 2011, the Central Bank announced a new minimum capital target for AIB of 10.5% core tier 1 in a base scenario and 6% core tier 1 in
a stressed scenario. These target ratios form the basis of the Groups capital management policy and are capital adequacy requirements effective
as at 31 December 2012. (11)Please see Capital Management section for
further detail.








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Summary income statement

2012
 m




2011  m




2010  mNet interest income


1,106





1,350





1,844Other income


318





438





463Total operating income


1,424





1,788





2,307Personnel expenses


(1,013
)




(935
)




(921)General and administrative expenses


(607
)




(637
)




(528)Depreciation(1), impairment and
amortisation(2)


(119
)




(115
)




(180)Total operating expenses


(1,739
)




(1,687
)




(1,629)Operating(loss)/profit before provisions


(315
)




101





678Provisions for impairment on loans and receivables


(2,434
)




(7,861
)




(6,015)Provisions for liabilities and commitments


(9
)




(17
)




Provisions for impairment on financial investments available for sale


(86
)




(283
)




(74)Total provisions


(2,529
)




(8,161
)




(6,089)Operating loss


(2,844
)




(8,060
)




(5,411)Associated undertakings


10





(37
)




18Profit/(loss) on disposal of property


2





(1
)




46Profit/(loss) on disposal of businesses


3





38





(11)Loss from continuing operations before exceptional items


(2,829
)




(8,060
)




(5,358)Loss on disposal of loans


(962
)




(322
)




(54)Profit/(loss) on transfer of financial instruments to NAMA


159





(364
)




(5,969)Gain on redemption of subordinated debt and other capital instruments








3,277





372Interest rate hedge volatility








(39
)




(13)Retirement benefits curtailment


204











Restructuring and restitution expenses


(402
)




(33
)




(20)Writeback/(charge) of contingent provisions for NAMA loans








433





(1,029)Total exceptional items


(1,001
)




2,952





(6,713)Loss before taxation from continuing operations


(3,830
)




(5,108
)




(12,071)Income tax credit from continuing operations


183





1,188





1,710Loss after taxation from continuing operations


(3,647
)




(3,920
)




(10,361)Profit after taxation from discontinued operations








1,628





199Loss for the year


(3,647
)




(2,292
)




(10,162)2012
%




2011%




2010
%Cost income ratio(3)


122.1





94.4





70.6 (1)Depreciation of property, plant and equipment. (2)Impairment and amortisation of intangible assets. (3)Excluding exceptional items. Overview of results The Group recorded a loss before taxation from continuing
operations of  3.8 billion in 2012 compared to a loss of  5.1 billion in 2011. When exceptional items of  1.0 billion in 2012 are excluded the loss from continuing operations was  2.8 billion in 2012 compared to  8.1 billion
in 2011. The performance reflected a material reduction in provisions, lower levels of income on reduced business volumes and additional costs primarily associated with the ongoing restructuring of the Group. Provisions for impairment on loans and
receivables were  2.4 billion in 2012, a reduction of  5.4 billion from 2011. The level of provisions in 2012 continues to reflect the continued weak economic
environment. The Group recorded an operating loss before provisions and excluding exceptional items of  315 million in 2012 compared to  101 million profit in 2011. Net interest income reduced by 18% compared to 2011, reflecting lower loan balances
following deleveraging, higher volumes of impaired loans and an increase in the cost of funds for the bank. Other income was 27% lower as fee and commission income reduced in 2012 reflecting subdued demand, lower business volumes and weak economic
conditions. Total operating expenses were 3% higher compared to 2011, and 1% higher when the impact of EBS for the full twelve months in 2012 is








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taken into account. This increase in costs mainly related to additional external provider fees on Group restructuring, deleveraging transactions and credit management improvement, partially
offset by the impact of staff exits in 2012. At 31 December 2012, the Group remains well capitalised with a core tier 1 capital ratio of 15.1%, comfortably
above the 10.5% minimum target level as prescribed by the Central Bank of Ireland. Exceptional items The Groups performance is presented to exclude those items that the Group believes obscure the underlying performance trends in the business. 
Loss on disposal of loans: There was  962 million loss on disposal of loans of which
 952 million related to the ongoing deleveraging programme in the Non-Core portfolio. 
Profit/(loss) on transfer of financial instruments to NAMA: valuation adjustments on previous transfers of financial assets to NAMA. 
Retirement benefits curtailment: AIB affirmed its approach to the funding of the Irish pension scheme during the year which resulted in a reduction in the scheme obligations under IAS 19 Employee Benefitsof  204 million which was recognised in the income statement. 
Restructuring and restitution expenses: includes early retirement/voluntary severance termination benefits, restructuring costs associated with the closure of AIBs operations in the Isle of Man and Channel Islands
and restitution expenses for Payment Protection Insurance and the UK Derivatives investigation.








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Income statement commentary  Net interest income

2012
 m


2011  m


2010  mNet interest income


1,106



1,350



1,844Average interest earning assets

2012
 m


2011  m


2010  mAverage interest earning assets


122,200



131,038



141,093Net interest margin

2012
%


2011
%


2010
%Group net interest margin


0.91



1.03



1.31Group net interest margin excluding eligible liabilities guarantee (ELG)


1.22



1.40



1.52 2012 v 2011 Net interest income was  1,106 million in 2012 compared with  1,350 million in 2011, a decrease of
 244 million or 18%. Average interest earning assets decreased by  9 billion in 2012 to  122 billion compared with  131 billion in 2011. Group net interest margin was 91 basis
points (bps) in 2012 compared with 103bps in 2011. The underlying reduction in net interest income mainly reflected lower loan balances along with
higher funding costs through interest bearing customer accounts, which saw the average gross cost increase from 219bps to 264bps, notwithstanding appreciably lower wholesale market rates. These factors were partially offset by the impact of the
recapitalisation during 2011 and lower wholesale funding costs in 2012. In the second half of 2012, deposit pricing actions along with the impact of standard variable rate mortgage increases have resulted in a stabilisation in the net interest
margin. The ELG charge for 2012 was  388 million as compared to  488 million for 2011. The reduction in the ELG charge is due to lower levels of wholesale funding in 2012, withdrawal of AIB UK from the ELG scheme in August 2012 and NTMA deposits of  11 billion which impacted the ELG charge until July 2011. Excluding ELG, net interest income reduced by  344 million or 19%. Net interest income excluding ELG for EBS was  198 million for the
full year in 2012 compared with  158 million from 1 July 2011, the date of EBS acquisition. Excluding the
cost of the ELG scheme, the net interest margin for 2012 was 1.22% compared with 1.40% in 2011. The factors contributing to the decline in the margin of 18bps is due to a contraction in yields on interest earning assets of 14bps and an increase of
4bps on the cost of funding those assets. 2011 v 2010 Net interest income
was  1,350 million in 2011 compared with  1,844 million in 2010, a decrease of  494 million or 27%. Excluding EBS net interest income of  158 million in the second half of 2011, net interest income decreased by  652 million or 35%. Net interest income for 2011 and 2010 included charges for the ELG scheme of  488 million and
 306(1) million respectively excluding which net interest income reduced by  312 million or 15%. The ELG scheme replaced the CIFS scheme in January
2010, the cost of which was recorded in other income. The decrease in net interest income excluding the ELG cost mainly reflected margin compression arising from
the higher cost of deposits, reduced interest-earning loan volumes due to higher impairments, sales of non-core assets and net repayments within the core loan portfolio. Excluding the cost of the ELG scheme, the net interest margin for 2011 was 1.40% compared with 1.52% in 2010. The estimated(2) factors contributing to the decline in the
margin of 12 basis points were: -10bps due to lower loan margin income, -4bps due to an increase in the cost of customer deposits and -7bps due to lower treasury/other net interest income. This was partly offset by +6bps due to lower cost of
wholesale funding following recapitalisation and +3bps due to higher income on capital and the benefit following the liability management exercises. (1)The total government guarantee charge was  357 million in 2010 including Credit Institutions (Financial Support) scheme (CIFS) charge of 
51 million which is included in other income and  306 million ELG charge in net interest income. (2)Management estimate








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Other income  Other income



2012
 m




2011 m




2010  mDividend income




1





4





1Banking fees and commissions




382





412





486Investment banking and asset management fees




14





58





99Fee and commission income




396





470





585Irish Government guarantee scheme expense (CIFS)
















(51
)Other fee and commission expense




(29
)




(29
)




(37
)Less: Fee and commission expense




(29)





(29)





(88)Trading income(1)




(100)





(74)





(188)Other operating income




50





67





153Other income before exceptional items




318





438





463 (1)Trading income includes foreign exchange
contracts, debt securities and interest rate contracts, credit derivative contracts, equity securities and index contracts. 2012 v 2011 Other income before exceptional items was  318 million in 2012 compared
with  438 million in 2011, a reduction of 120 million or 27%. Fee and commission income decreased by  74 million as fees including
those related to life assurance, ATM fees and various branch fees all reduced due to lower levels of activity. Investment banking and asset management fees were lower primarily due to the disposal of AIBIFS (November 2011) and AIBIM (May 2012). Negative trading income was  100 million in 2012 compared to  74 million in 2011. Increase in negative income reflects a further fair value movement on the options relating to transactions on the expected disposal of Aviva Life Holdings (see note 35 to the financial
statements) and loan breakage and associated costs relating to deleveraging. Other operating income in 2012 was  50 million compared with  67 million in 2011. In 2012 there was a net  31 million profit
from the disposal of available for sale debt and equity securities. The comparative period in 2011 included  61 million from litigation settlements, 
40 million in foreign exchange gains and  8 million income from the disposal of available for sale equity shares, partially offset by a loss of 
36 million from the disposal of available for sale debt securities which primarily related to bonds in peripheral Eurozone countries. Other income for EBS was  14 million for the full year in 2012 compared with  5 million from 1 July 2011, the date of EBS
acquisition. 2011 v 2010 Other income before exceptional items was  438 million in 2011 (of which EBS contributed  5 million), compared with
 463 million in 2010. This represents a decrease of  25 million or 5%, or  76 million
(15%) excluding the cost of the Irish Government guarantee scheme expense (CIFS) of  51 million in 2010. The weaker economic conditions, challenging trading markets in which AIB operates and the
disposal of businesses resulted in lower business volumes and lower revenues. Banking fees and commissions decreased by 15% reflecting lower business volumes and
activity. Investment banking and asset management fees were down 41% in 2011 mainly reflecting lower income following the sale of Goodbody Stockbrokers in December 2010. Fee and commission expense in 2010 included the cost of the CIFS scheme of  51 million. Trading loss was  74 million in 2011 compared to a loss of  188 million in 2010. Trading loss excludes interest payable and receivable arising from hedging and the
funding of trading activities, these are included in interest income. As a result the trend in trading loss within other income cannot be considered in isolation. On a total income basis (net interest income and other income), income from trading
activities was lower in 2011. The reduction in the trading loss in other income compared to 2010 mainly related to higher trading foreign exchange income and higher income from interest rate swaps partly offset by losses on credit derivative
contracts. Other operating income in 2011 was  67 million
compared with  153 million in 2010, a reduction of  86 million. In 2011 there was  61 million from
litigation settlements,  40 million in foreign exchange gains and  8 million income from the disposal of available for sale equity shares, partially
offset by a loss of  36 million from the disposal of available for sale debt securities which primarily related to bonds in peripheral Eurozone countries. In 2010 there was  75 million profit from the disposal of available for sale debt securities,  13 million profit from the disposal of available for sale equity shares and  8 million in foreign exchange gains.








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Total operating expenses  Operating expenses

2012
 m


2011  m


2010  mPersonnel expenses


1,013



935



921General and administrative expenses


607



637



528Depreciation,(1) impairment and
amortisation(2)


119



115



180Total operating expenses


1,739



1,687



1,629 (1)Depreciation of property, plant and equipment. (2)Impairment and amortisation of intangible assets. 2012 v 2011 2012 operating expenses of
 1,739 million includes EBS costs of  80 million for a full twelve months compared to  46 million for six months in 2011 (date of acquisition 1 July 2011). Adjusting for the acquired EBS business, operating costs of  1,659 million are  18 million higher than 2011. Personnel expenses in 2012 were  1,013 million, an increase of  78 million or 8% compared with  935 million in 2011, and include
the full year impact of EBS of  36 million compared to the six month impact of  21 million in 2011. The higher costs reflected the higher pension
costs and an increase in the number of fixed term contract staff, particularly in credit management areas. The implementation of the early retirement/voluntary severance scheme in 2012 included the departure of 1,744 staff from AIB resulting in an
overall net decrease in FTE of 1,072 compared to 2011. The majority of the early retirement/voluntary severance scheme exits occurred in the latter part of 2012. General and administrative expenses of  607 million in 2012 were  30 million or 5% lower than 2011 and reflect lower external provider fees compared to 2011. External provider fees in both periods were associated with business outsourcing, restructuring and
transformation, deleveraging and credit management. Additionally, external provider fees in 2011 were incurred on capital raising initiatives. Depreciation,
impairment and amortisation expense of  119 million in 2012 was  4 million or 3% higher when
compared to 2011 and include impairment on branches being closed. 2011 v 2010 Total operating expenses were  1,687 million in 2011, an increase of  58 million or 4% compared to  1,629 million in 2010. EBS operating costs of  46 million are included
from 1 July 2011, excluding which costs increased by  12 million or 1%. The cost increase of  12 million in 2011 included higher external
provider fees and higher fees to statutory bodies partly offset by lower pension costs and lower NAMA related costs. In 2010 there was a writedown in the value of intangible assets in relation to projects discontinued during the year partly offset
by the reversal of an accrual for personnel expenses which was no longer required. When these amounts are excluded, costs in 2011 reduced by 4% compared to 2010. Personnel expenses in 2011 were  935 million, an increase of  14 million or 2% compared with  921 million in 2010. Excluding EBS personnel expenses of  21 million in
the second half of 2011, personnel expenses were 1% lower than 2010, notwithstanding the inclusion of c. 200 staff from the acquisition of Anglo deposits in February 2011 and increased staff numbers in credit management areas. Adjusting for the
one-off items mentioned in the previous paragraph, personnel expenses were 5% lower than 2010. General and administrative expenses of  637 million in 2011 were  109 million or 21% higher than 
528 million in 2010. The increase mainly related to external provider fees associated with restructuring and transformation, deleveraging, capital raising and credit management. There was also increased reimbursement of fees to statutory
bodies, particularly in relation to capital raising. Excluding these items and EBS expenses of  20 million in the second half of 2011, general and administrative expenses were down 5% when compared
to 2010. Depreciation, impairment and amortisation of 
115 million in 2011 was  65 million or 36% lower when compared to  180 million in 2010. This reduction was mainly due to a writedown in 2010 in
the value of intangible assets of  59 million in relation to projects discontinued. Asset quality See Risk Management section commencing on page 57. Commentary on AIBs asset quality is detailed on pages 68 to 166 with commentary on provision charge on pages 89
to 91.








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Associated undertakings 2012
v 2011 Income from associated undertakings in 2012 was 
10 million compared with a loss of  37 million in 2011, 2012 income includes Aviva Health Insurance Ireland Limited and AIBs share in the joint venture with First Data International
trading as AIB Merchant Services. On 1 July 2012, AIB re-designated its investment in Aviva Life Holdings as an equity investment at fair value through the income statement (see note 35 to the financial statements). 2011 v 2010 Loss from associated undertakings in 2011 was  37 million compared with a profit of  18 million in 2010. The results for 2011 include an impairment of
the investment in Aviva Life Holdings of  36 million (see note 35 to the financial statements). Associated undertakings also includes Aviva Health Insurance Ireland Limited and AIBs share in
the joint venture with First Data International trading as AIB Merchant Services. Income tax 2012 v 2011 The taxation credit for 2012 was  183 million (being a  183 million credit relating to deferred taxation), compared with a taxation credit
of  1,188 million in 2011 (including a credit of  1,148 million relating to deferred taxation). The credit is influenced by the geographic mix of
profits and losses, which are taxed at the rates applicable in the jurisdictions where the Group operates. With specific exceptions as set out in note 38 to the financial statements, the largest of which relates to UK tax losses, deferred tax credit
continues to be recognised in full for the value of tax losses arising in Group companies, as it is expected that the tax losses will be utilised in full against future profits. 2011 v 2010 The taxation credit for 2011 was  1,188 million (including a  1,148 million credit relating to deferred taxation), compared with a taxation
credit of  1,710 million in 2010 (including a credit of  1,714 million relating to deferred taxation). The taxation credits exclude taxation on share
of results of associated undertakings. Associated undertakings are reported net of taxation in the Group loss before taxation. The credit is influenced by the geographic mix of profits and losses, which are taxed at the rates applicable in the
jurisdictions where the Group operates. With specific exceptions as set out in note 38 to the financial statements, deferred tax credit continues to be recognised in full for the value of tax losses arising in Group companies, as it is expected that
the tax losses will be utilised in full against future profits. Discontinued operations The results for 2011 included the consolidated results of BZWBK for the quarter to 31 March 2011 and the profit on sale of BZWBK.  Profit from discontinued operations

2012
 m


2011  m


2010  mBZWBK






99



329M&T










5BACB










(60)Profit before taxation






99



274Income tax expense






(17
)


(72)Profit after taxation






82



202Profit on disposal of business






1,546



Loss recognised on the remeasurement to fair value less costs to sell(1)










(3)Profit for the period from discontinued operations






1,628



199 (1)Relates to impairment of intangible assets. 2011 v 2010 Discontinued operations recorded a profit after taxation of  1,628 million in 2011 compared to  199 million in 2010. Discontinued operations in 2010 were impacted by
investment reviews which resulted in a  62 million writedown with regard to the investment in BACB and by the completion of the disposal of the M&T investment on 4 November 2010. See note 18
to the financial statements for further details. BZWBK recorded a profit before taxation of
 99 million in the three months to March 2011, compared with  329 million in the full year 2010 and
there was a profit on disposal of the business of  1,546 million, following completion of the sale on 1 April 2011.








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Balance sheet commentary The
commentary on the balance sheet is on a continuing operations basis unless otherwise stated.  Gross loans(1)

31 December
2012  bn



31 December
2011  bn



31 December
2010  bnPersonal & Business Banking



30.0





29.2





30.6Corporate, Institutional & Commercial Banking



22.4





24.7





25.2AIB UK



8.9





9.4





9.4EBS



13.0





13.6





Group















0.1Total Core



74.3





76.9





65.3Non-Core



15.0





20.5





28.3Total gross customer loans



89.3





97.4





93.6Gross loans held for sale to NAMA















2.2Other gross loans held for sale (Non-Core)



0.6





1.2





0.1Total gross loans



89.9





98.6





95.9 (1)The balance sheet identifies loans eligible for
sale to NAMA and loans classified as held for sale as part of deleveraging measures (included in Disposal groups and non-current assets held for sale) separately from other customer loans. 2012 v 2011 Total gross loans were down  8.7 billion or 9% since 31 December 2011. This reduction reflected deleveraging measures and continued weak demand for credit from certain sectors in 2012.
Total Core loans are down  2.6 billion which reflects lower demand from larger businesses and corporates, partially offset by new lending to personal and small businesses. Additionally  0.8 billion of loans were transferred from Core to Non-Core in 2012. Non-Core loans reduced by  6.1 billion or 28% and is in line with the Groups commitments
to the Financial Measures Programme in 2011. Excluding currency factors, AIB UK gross loans decreased by 8%. 2011 v 2010 While the headline gross customer loans are up  2.7 billion in 2011, gross
loans were down 14% or  13.6 billion since 31 December 2010 excluding EBS gross loans of  16.3 billion (including EBS loans classified as Non-Core of  2.7 billion) at 31 December 2011. This reduction reflected significant ongoing deleveraging measures and continued weak demand for credit in 2011. Excluding currency factors, AIB UK gross loans decreased
by 2%.  Net loans(1)

31 December
2012  bn



31 December
2011  bn



31 December
2010  bnPersonal & Business Banking



26.8





27.0





29.4Corporate, Institutional & Commercial Banking



16.3





19.6





22.8AIB UK



8.3





9.0





9.1EBS



12.3





13.1





Group















0.1Total Core



63.7





68.7





61.4Non-Core



9.2





13.8





25.0Total net customer loans



72.9





82.5





86.4Net loans held for sale to NAMA















1.9Other net loans held for sale (Non-Core)



0.4





1.2





0.1Total net loans



73.3





83.7





88.4 (1)The balance sheet identifies loans
eligible for sale to NAMA and loans classified as held for sale as part of deleveraging measures (included in Disposal groups and non-current assets held for sale) separately from other customer loans. 2012 v 2011 Total net loans decreased by  10.4 billion or 12%, reflecting the movement of gross loans as set out above and additional impairment charge in the year. The identified pool of Non-Core
assets including net customer loans classified as held for sale reduced from  15.0 billion at 31 December 2011 to  9.6 billion at 31 December 2012.
Excluding currency factors, AIB UK net loans decreased by 9% in 2012.








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2011 v 2010 Excluding EBS net
loans of  15.3 billion at 31 December 2011 (including EBS loans classified as Non-Core of  2.2 billion),
net loans decreased by  20.0 billion or 23%. The identified pool of Non-Core assets including net customer loans classified as held for sale reduced from  25.1
billion at 31 December 2010 to  12.8 billion at 31 December 2011 (excluding EBS non-core loans of  2.2 billion at the end of 2011). The reductions
reflected the aforementioned significant ongoing deleveraging measures, weaker credit demand and loan loss provisions. Excluding currency factors, AIB UK net loans decreased by 4% in 2011.  Customer accounts

31 December 2012
 bn



31 December 2011
 bn



31 December 2010
 bnPersonal & Business Banking



27.0





28.2





28.0Corporate, Institutional & Commercial Banking



14.5





13.8





15.4AIB UK



10.9





10.2





9.0EBS



10.1





8.5





Group



1.1











Total Core



63.6





60.7





52.4Non-Core















Total customer accounts



63.6





60.7





52.4 2012 v 2011 Customer accounts of  63.6 billion are up  2.9 billion (5%) since 2011 and 11.2 billion
(21%) since 2010. The increase in 2012 was achieved despite a range of deposit pricing actions taken in 2012 and generally reflects a return to more normalised market behaviour. Customer accounts are higher across all business areas with the
exception of Personal and Business Banking (PBB) which includes the impact of the ongoing wind-up of AIBs operations in Isle of Man and Channel Islands. Excluding this, PBB customer accounts were up
 0.6 billion (2%) year on year. Excluding currency factors, AIB UK customer accounts increased by 5% in 2012. 2011 v 2010 The increase in total customer accounts of  8.3 billion includes the acquisition of EBS deposits and Anglo deposits of  8.5 billion and  5.3 billion respectively as at 31 December 2011. Excluding the EBS deposits and Anglo deposits, customer accounts were down  5.5 billion. Bank and sovereign
ratings downgrades contributed to an outflow in deposits in the first half of 2011, particularly from Non Bank Financial Institutions (NBFIs) and international corporates during quarter 1 2011. In the second half of 2011 customer account
balances were broadly stable. Excluding currency factors, AIB UK customer accounts increased by 10% in 2011.








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Funding(1) 31 December
2012


31 December
2011


31 December
2010(2)Sources of funds - total AIB Group basis

 bn

%


 bn


%


 bn


%Customer accounts

64


55



61



47



63



45Deposits by central banks and banks - secured

28


24



36



28



41



29- unsecured

1


1



1



1



9



7Certificates of deposit and commercial paper
















1



1Asset covered securities (ACS)

3


3



4



3



3



2Securitisation

1


1



1



1







Senior debt

6


5



11



8



12



9Capital(3)

13


11



15



12



9



7Total source of funds

116


100



129



100



138



100Other(4)

7






8







7123






137







145 (1)The funding commentary is on a total AIB Group
basis. (2)Includes BZWBK at 31 December 2010. (3)Includes total shareholders equity, subordinated liabilities and other
capital instruments. (4)Non-funding liabilities including derivative financial
instruments, other liabilities, retirement benefits and accruals and other deferred income. 2012 v 2011 Customer accounts contributed 55% of the total funding requirement at 31 December 2012, up from 47% at 31 December 2011. This represents a  3 billion increase in customer accounts in 2012, notwithstanding outflows of  2 billion as a result of the
announced closure of AIBs operations in Isle of Man and Channel Islands. This level of growth was noteworthy given managements focus on reducing the pricing of deposits in both the Irish and UK markets in the second half of 2012. While wholesale funding markets continued to be challenging in 2012, the second half of the year showed significant improvement in sentiment towards Ireland. Given the
emergence of a return to more normalised market operations, AIB re-entered the wholesale market issuing a  500 million covered bond in November 2012. At 31 December 2012, the Group held  41 billion in qualifying
liquid assets/contingent funding (excluding trapped liquidity at a Group level relating to AIB Group (UK) plc) of which approximately  28 billion was used in repurchase agreements. The Group continues to
explore and develop contingent collateral and funding facilities to support its funding requirements. In this regard, AIB issued an external residential mortgage backed security (RMBS) in May 2012 using mortgage collateral from its UK
operations, raising £ 0.3 billion in funding. Deposits by central banks and banks decreased by  8 billion year on year. At 31 December 2012 AIB availed of Central Bank funding of  22 billion, down from 
31 billion in 2011. This included the switching of an additional  8 billion from short term Central Bank drawings into the 3 year Long Term Repurchase Operation (LTRO), with the total 3 year
LTRO balance of  11 billion at December 2012. The reduction in Central Bank drawings in 2012 was due to asset deleveraging, loan amortisation and continued weak demand for credit, the redemption of NAMA
senior bonds and increased deposits, offset partially by maturing secured and unsecured bonds (ACS and medium term notes (MTN) respectively). Reducing the reliance on Central Bank funding will continue to be a key objective of the Group.
The strong deposit growth and the lower loan balances, including deleveraging actions contributed to an improved Group loan to deposit ratio. The Groups loan to deposit ratio including loans and receivables held for sale decreased from 138% at
31 December 2011 to 115% at 31 December 2012. Senior debt funding of
 6 billion at 31 December 2012 decreased from  11 billion at 31 December 2011 due to contractual
maturing bonds.








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2011 v 2010 The Groups
balance sheet saw significant change in 2011, with the disposal of BZWBK, the acquisition of Anglo NAMA senior bonds and deposits, the acquisition of EBS, asset deleveraging in the Non-Core unit and the completion of AIBs capital raising
measures. The source of funds continued to show customer accounts as the largest funding source at 47% of total funding requirement at 31 December 2011, up
from 45% at 31 December 2010. Excluding the NTMA deposit placed at 30 June 2011 of  11 billion in advance of recapitalisation in July, customer
accounts were broadly stable in the second half of 2011. This was a positive result following the  5 billion decrease in customer deposits (excluding Anglo) in the first half of 2011. Customer deposits
stabilised after the PCAR announcement and the resultant recapitalisation of the Group. Secured funding has decreased by  5 billion ( 9 billion excluding EBS
repos) due to asset deleveraging and sale of securities held in AIBs available for sale (AFS) portfolio. Unsecured interbank borrowings reduced by  8 billion to  1 billion in the full year reflecting the repayment of non standard facilities with the CBI in April 2011. At 31 December 2011 AIB availed of Central Bank funding of
 31 billion (including EBS of  4 billion), down from  37 billion at 31 December 2010. AIB extended the
banks debt maturity by participating in the 3-year Long Term Refinancing Operation, to the amount of  3.0 billion at 31 December 2011. Reducing the reliance on ECB funding will continue to be a
key objective of the bank. Senior debt as a percentage of funding sources decreased by 1% in 2011 to 8% at 31 December 2011 reflecting the repayment of  2 billion in bonds, offset partially by  1 billion of EBS bonds. ACS as a percentage of funding sources increased by 1% to 3% at 31 December 2011 due to the inclusion of EBS ACS. The Groups loan deposit ratio decreased from 165% at 31 December 2010 to 136% at 31 December 2011 (138% including the aforementioned loans and
receivables held for sale). The Group is managing to interim targets for the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) pending their formal introduction as regulatory standards in 2015 and 2018
respectively. Access to wholesale funding markets continued to be restricted in 2011. This is a symptom of the continued negative sentiment towards the fiscal
position which gave rise to the EU/ECB/IMF financial support package, the Europe-wide uncertainty in the second half of 2011 and the Groups credit rating. The terms of the restructuring plan agreed with the EU/ECB/IMF requires AIB to reduce
its wholesale funding dependency and maintain its deposit franchise. The retention and gathering of stable customer accounts in a challenging and increasingly competitive market environment remains a key focus of the Group. Coupled with the action
to deleverage Non-Core assets, this is paramount to increasing the banks pool of available liquid assets and to the Groups overall funding/liquidity strategy. Capital See Capital Management section commencing on page 43.








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Segment reporting In this
section, the Groups operations are reported under the Core banking segments and Group (which includes wholesale treasury activities). Non-Core, which comprises assets which AIB is committed to deleveraging together with related costs, is
reported as a distinct portfolio. The segments performance statements include all income and direct costs relating to each segment but exclude certain
overheads which are held centrally in the Group segment. Funding and liquidity charges are based on actual wholesale funding costs incurred and a segments net funding requirements. Wholesale funding costs include ELG charges
relating to wholesale funds. Net interest income also includes ELG charges directly attaching to customer deposits within a segment. Income on capital is allocated to segments based on each segments capital requirement. Surplus capital is held
in the Group segment. The cost of services between segments and from central support functions to segments is based on the estimated actual cost incurred in providing the service. A summarised view of the Groups segmental performance is available in note 1 to the financial statements. Personal & Business Banking (PBB)comprises banking operations for personal customers and small enterprises within the Republic of
Ireland. This segment also includes Channel Islands and the Isle of Man.  PBB income statement





2012  m





2011  m





2010  mNet interest income before ELG





672





686





783ELG





(97)





(103)





(64)Net interest income





575





583





719Other income





259





263





297Total operating income





834





846





1,016Personnel expenses





(420)





(441)





(443)General and administrative expenses





(217)





(200)





(175)Depreciation/amortisation





(55)





(57)





(65)Total operating expenses





(692)





(698)





(683)Operating profit before provisions





142





148





333Provisions for impairment on loans and receivables





(494)





(1,177)





(736)Provisions for impairment on financial investments available for sale











(2)





(2)Total provisions





(494)





(1,179)





(738)Operating loss





(352)





(1,031)





(405)Associated undertakings





13





(39)





16Loss on disposal of property











(1)





Loss before disposal of businesses





(339)





(1,071)





(389)Profit on disposal of businesses





1





10





Loss before exceptional items





(338)





(1,061)





(389)PBB balance sheet metrics

31 December
2012  bn

31 December
2011  bn

31 December 2010
 bnGross loans





30.0





29.2





30.6Net loans





26.8





27.0





29.4Customer accounts





27.0





28.2





28.0 2012 v 2011 PBB loss before exceptional items
was  338 million, an improvement of  723 million on the 2011 loss of
 1,061 million. Operating profit before provisions of  142 million was  6 million (4%) lower than
2011 with income  12 million (1%) lower and costs  6 million (1%) lower. Income was lower as a result of the higher cost of deposits, lower
level of customer transaction activity resulting in lower fee income partly offset by higher lending margins as a result of pricing actions taken in the year. Total operating expenses were  6 million
lower and include the benefit of ongoing cost management actions taken during the period. Excluding the realignment of costs between Group and segments, which was impacted by refinement to the organisation structure, total operating expenses were  66 million higher reflecting higher transformation and restructuring costs in 2012. Provisions for impairment on loans and receivables reduced from  1.2
billion in 2011 to  0.5 billion in 2012.








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Gross loans to customers increased
 0.8 billion (3%) in the year. This increase reflects an internal transfer of customer loans from Non-Core of
 1.4 billion, increased lending to personal customers as part of AIBs mortgage lending targets and to small businesses offset by customer loan repayments. In 2012, AIB met its lending commitments of
 3.5 billion to SMEs. There was a  0.6 billion increase in customer accounts when AIBs operations in Isle of Man and Channel Islands are excluded,
representing a return to more normalised deposit market conditions in the second half of 2012. 2011 v 2010 2011 was a particularly difficult year for PBB, as conditions in Irelands economy remained very challenging. Competition for deposits further intensified against
the background of a low interest rate environment. In addition, lower lending margins mainly reflected lower variable rate home mortgage margins partially offset by increased margins on other products. Higher unemployment and lower disposable
incomes contributed to higher mortgage impairments. For the year ended 31 December 2011, PBB recorded a loss before exceptional items of  1,061 million with provisions for impairment on loans and receivables of  1,177 million. This compares with a
loss before exceptional items of  389 million in 2010 with provisions for impairment on loans and receivables of  736 million. Operating profit before provisions was  148 million. This was down 56% when
compared to 2010, with total operating income of  846 million down 17% and total operating expenses of  698 million, an increase of 2%. Net loans to customers reduced by 8% to  27 billion at 31 December
2011. This decrease reflects increased loan impairment provisions, loan repayments and subdued demand for new lending, particularly for mortgage and consumer credit products as consumers continue to take a cautious approach to additional debt and in
many cases are reducing their personal debt levels. Total customer accounts remain broadly unchanged at  28 billion as at 31 December 2011 when compared with 31 December 2010. Intense competition which existed in the Irish deposit market during 2011 coupled with Irish and European sovereign debt
concerns impacted on the ability to raise retail deposits. This resulted in a 9% reduction to underlying customer accounts compared with 31 December 2010 when customer accounts received as part of the acquisition of the Anglo deposit business
are excluded. Concerns about Irelands fiscal position and the stability of the banking sector gave rise to significant outflow of deposits in the first half of 2011 and resulted in 8% reduction in deposit balances to 30 June. This decline
stabilised in the second half of the year with deposits remaining relatively flat between 30 June and 31 December 2011 as fears subsided and with continued focus by PBB on both retention and gathering of deposits albeit at elevated pricing
levels. Net interest income for year ended 31 December 2011 of 
583 million was 19% lower than 2010. This reduction in net interest income was due to the cost of the Eligible Liabilities Guarantee (ELG) scheme together with the higher cost of wholesale funding. In addition, there was a reduction in the
average earning loan volumes due to the migration of loans from earning to impaired and scheduled loan repayments during 2011. There was also a reduction in lending margins, due to variable rate home mortgage pricing as the April and July 25bps
ECB rate increases were not passed on to customers. The effect of this was partly offset by some recovery in non mortgage lending margin during the year. Other
income for year ended 31 December 2011 of  263 million was 11% lower than 2010 reflecting lower level of customer transaction activity with an
adverse impact on fees and other income. Total operating expenses for year ended 31 December 2011 of  698 million were 2% higher than 2010. Rigorous cost management of the PBB cost base was offset by costs associated with increases in the number of personnel in credit management and compliance
roles. The provision charge for impairment on loans and receivables for year ended 31 December 2011 was  1,177 million and represents a charge of 3.95% of average gross loans. Impairment charge on the PBB loan portfolio remains high but within expectations due to the economic downturn, which has
resulted in high levels of unemployment and lower disposable incomes. These factors combined with high levels of personal debt have given rise to a significant increase in impaired loans. Impaired loans at 31 December 2011 were  1.2 billion higher at  2.7 billion when compared to 31 December 2010, driven principally by growth in home mortgage impaired loans of  1 billion (owner occupier  0.7 billion, buy to let  0.3 billion). Losses incurred on associated undertakings reflect an impairment charge of 
36 million in respect of the investment in Aviva Life Holdings Limited - see note 35 to the financial statements for further details. Profit on disposal of
business for the year ended 31 December 2011 of  10 million represents the profit from sale of AIB Jerseytrust Limited, located in the Channel
Islands.








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Corporate, Institutional & Commercial Banking (CICB) comprises banking operations for
mid-sized commercial and corporate enterprises. It also includes a Corporate Finance business and a Treasury customer services area which delivers treasury services to customers of the Group.  CICB income statement















2012
 m
















2011  m
















2010  mNet interest income before ELG
















102

















264

















322ELG
















(190
)
















(185
)
















(154)Net interest income
















(88
)
















79

















168Other income
















75

















85

















73Total operating (loss)/income
















(13
)
















164

















241Personnel expenses
















(173
)
















(163
)
















(144)General and administrative expenses
















(64
)
















(86
)
















(79)Depreciation/amortisation
















(12
)
















(14
)
















(13)Total operating expenses
















(249
)
















(263
)
















(236)Operating (loss)/profit before provisions
















(262
)
















(99
)
















5Provisions for impairment on loans and receivables
















(916
)
















(2,933
)
















(1,557)Provisions for liabilities and commitments
















(4
)


































Provisions for impairment on financial investments available for sale


































(5
)
















(7)Total provisions
















(920
)
















(2,938
)
















(1,564)Operating loss
















(1,182
)
















(3,037
)
















(1,559)Loss before exceptional items
















(1,182
)
















(3,037
)
















(1,559)CICB balance sheet metrics

31 December
2012  bn


31 December2011
 bn


31 December 2010
 bnGross loans
















22.4

















24.7

















25.2Net loans
















16.3

















19.6

















22.8Customer accounts
















14.5

















13.8

















15.4 2012 v 2011 CICB loss before exceptional items
was  1.2 billion in 2012 compared to a loss of  3.0 billion in 2011. Operating loss before provisions was  262 million in 2012 compared to  99 million in 2011, with negative total operating income of  13 million
down  177 million and total operating expenses of  249 million down  14 million. Negative net interest income of  88 million was  167 million lower than 2011. The reduction related to a combination of higher non-performing loans and higher deposit funding costs driven by pricing pressure and a lower interest rate environment. Other
income of  75 million was 12% lower than 2011 reflecting lower fee and foreign exchange income and interest rate swap income. Total operating expenses of 
249 million were 5% lower than 2011. Excluding the realignment of costs between Group and segments, which was impacted by refinement to the organisation structure, total operating expenses were in line with 2011. Personnel expenses were 6%
higher due to increased staff numbers which were mainly required to support more intensive credit management activity relating to distressed customers. General and administrative expenses of 
64 million in 2012 reduced by 26%, primarily driven by lower external provider fees associated with business transformation in 2011. Provisions for impairment on loans and receivables for 2012 were 
0.9 billion compared to  2.9 billion in 2011. While the reduction in the credit provision charge is significant, the level of the charge remains elevated due to the difficult domestic economic environment
and continued decline in property valuations. Gross loans to customers decreased
 2.3 billion (9%) reflecting lower customer demand and an internal transfer of customer loans to Non-Core. There was a  0.7 billion (5%) increase in customer accounts
representing a return to more normalised deposit market conditions in the second half of 2012.








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2011 v 2010 CICB loss before
exceptional items was  3.0 billion in 2011 compared to  1.6 billion in 2010. Operating loss before provisions
of  99 million in 2011 compared to an operating profit of  5 million in 2010, with total operating income of
 164 million down by  77 million and total operating expenses of  263 million up  27 million. Net interest income of
 79 million was 53% lower than 2010. This reduction in net interest income was due to higher non-performing loan volumes, higher costs of deposits and
increased ELG costs. Deposit pricing remained intensely competitive throughout the year. Consumer sentiment in the Republic of Ireland remained subdued during 2011
with ongoing uncertainty in the Eurozone. CICB is fully committed to supporting customers facing difficulty and has a dedicated team in place to provide a range of supports to mid sized commercial enterprises. Gross loans were down  0.5 billion compared to 2010 and net loans were down
by  3.2 billion, mainly due to provision charges. Demand for business credit remained at subdued levels reflecting the uncertain economic outlook. Other income of  85 million was 16% higher due to lower mark to market
writedowns in 2011. Excluding the writedowns, other income was lower than 2010 reflecting lower fee and foreign exchange income. Personnel expenses were  19 million higher due to increased staff numbers which were mainly required to support more intensive credit management activity and the reversal in 2010
related to personnel expenses not utilised. General and administrative expenses of  86 million in 2011 increased by 9%, primarily driven by higher external provider fees associated with business
transformation. The provision charge for impairment on loans and receivables for 2011 was
 2.9 billion compared to  1.6 billion in 2010. The increase in the impairment charge reflects the stressed
economic environment and falling property values through 2011.








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AIB UKcomprises retail and commercial banking operations in Britain operating under the trading name Allied
Irish Bank (GB) (AIB GB) and in Northern Ireland operating under the trading name First Trust Bank (FTB).  AIB UK income statement
















2012£ m
















2011 £
m















2010
£ mNet interest income before ELG


















112
















167
















241ELG


















(29
)















(51)
















(45)Net interest income


















83
















116
















196Other income


















54
















61
















77Total operating income


















137
















177
















273Personnel expenses


















(88
)















(109)
















(118)General and administrative expenses


















(70
)















(54)
















(39)Depreciation/amortisation


















(9
)















(6)
















(8)Total operating expenses


















(167
)















(169)
















(165)Operating (loss)/profit before provisions


















(30
)















8
















108Provisions for impairment on loans and receivables


















(79
)















(194)
















(104)Operating (loss)/profit


















(109
)















(186)
















4Associated undertakings


















2
















2
















2(Loss)/profit before exceptional items


















(107
)















(184)
















6(Loss)/profit before exceptional items




m













(131
)















(214)
















7AIB UK balance sheet metrics



31 December2012
£ bn


31 December 2011
£ bn

31 December 2010
£ bnGross loans


















7.3
















7.9
















8.1Net loans


















6.8
















7.5
















7.8Customer accounts


















8.9
















8.5
















7.7 2012 v 2011 AIB UK reported a loss before
exceptional items of £ 107 million, an improvement of £ 77 million on 2011. The operating loss before provisions of £ 30 million, £ 38 million lower than 2011 was primarily driven by a reduction in net
interest income. Other income fell by 11% due to lower business transactions. Total operating expenses of £ 167 million were 1% lower than the previous year. Excluding the realignment of costs between Group and segments, which was
impacted by refinement to the organisation structure, total operating expenses were £11 million or 7% higher than the previous year. Personnel expenses declined by 19% in the year, but were offset by higher general and administrative
expenses mainly due to restructuring costs for head office and branch amalgamations and closures in 2012. Provisions for impairment on loans and receivables for the year decreased by 59% to £ 79 million, compared to 2011. Gross loans have fallen by 8% due to loan repayments and lower customer demand. Customer accounts have increased by 5% since December 2011, with increases occurring
mainly through the Savings Direct channel(1) and also in the AIB GB branch network. AIB UK withdrew from the ELG scheme in August 2012. (1)The Savings Direct channel was established following the transfer of deposits from Anglo Irish Bank in 2011.








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2011 v 2010 AIB UK reported a
loss before exceptional items of £ 184 million. Operating profit before provisions was £ 8 million in 2011 compared with a profit of £ 108 million in 2010, reflecting the reduction in loan volumes and continued
competition for customer deposits. The reduction in operating profit was primarily driven by a 41% reduction in net interest income. This reflects a reduction in
income from lower lending volumes mainly as a result of asset transfers to NAMA and Non-Core combined with continued margin compression on customer deposits. Lending margins continued to improve during the year, while net customer loans fell since
December 2010. Customer deposits increased by 10% since December 2010, which reflects the Anglo deposit business acquired in February 2011. While there was some reduction in the AIB originated UK book, this stabilised in the second half of 2011. As
a result of the decrease in advances and increase in the deposit book, the loan deposit ratio improved to 88% at 31 December 2011. Other income fell by 21%, as
a result of the reduction in fee income due to lower business transactions than the previous year and a gain on disposal of available for sale debt securities in 2010 which was not repeated in 2011. Costs increased by 2% on the previous year, with
lower staff costs as a result of reduced staff numbers and lower pension costs offset by higher operating expenses due to non recurring items. Loan impairment
charges for the year increased to £ 194 million, due to the continued economic downturn along with a higher IBNR charge in 2011.








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EBS was acquired by AIB on 1 July 2011 and therefore the 2011 results are for a six month period only. EBS
is primarily a mortgage based lending operation located in the Republic of Ireland. The income statement presented below is prepared on a management reporting basis and it excludes non-core and treasury related activities which are reported under
the Non-Core and Group segments respectively.  EBS income statement



















2012
 m
















2011  mNet interest income before ELG




















122

















113ELG




















(60
)
















(27)Net interest income




















62

















86Other income




















11

















5Total operating income




















73

















91Personnel expenses




















(30
)
















(18)General and administrative expenses




















(32
)
















(19)Depreciation/amortisation




















(10
)
















(5)Total operating expenses




















(72
)
















(42)Operating profit before provisions




















1

















49Provisions for impairment on loans and receivables




















(237
)
















(201)Operating loss




















(236
)
















(152)Loss before exceptional items




















(236
)
















(152)EBS balance sheet metrics

31 December2012
 bn


31 December 2011
 bnGross loans




















13.0

















13.6Net loans




















12.3

















13.1Customer accounts




















10.1

















8.5 2012 v 2011 EBS reported a loss before
exceptional items of  236 million for the full year 2012 compared to  152 million for the six months
in 2011, which includes provisions for impairment on loans and receivables of  237 million ( 201 million in 2011). The operating profit before
provisions for the period was  1 million. Net interest income for the period was  62 million. The cost of deposits remained high during the year as competition for deposits remained intense against the background of a low interest rate
environment. Total operating expenses in the period were  72 million. Provisions for impairment on loans and receivables of  237 million represents 1.8%
of average loan balances and brings total provisions at 31 December 2012 to  715 million or 5.5% of outstanding balances compared to 
461 million or 3.4% of outstanding balances at 31 December 2011. EBS continues to support the residential mortgage market in Ireland through mortgages
advanced to first time buyers and home movers. However, demand for new mortgages throughout 2012 was very low and gross loans reduced  0.6 billion (4%). EBS continues to have a strong franchise in the retail deposit market and at 31 December 2012 had total customer accounts of  10.1 billion, an increase of  1.6 billion or 19% since 31 December 2011.








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2011 v 2010 EBS reported a loss
before exceptional items of  152 million for the period since acquisition by AIB on 1 July 2011. The loss of
 152 million included provisions for impairment on loans and receivables of  201 million. Net interest income for the period was  86 million. The cost of retail and
wholesale funding, including the cost of ELG remained high during the period. It was necessary to further increase customer lending rates in order to return loan margins to sustainable levels. Total operating expenses in the period were  42 million. The underlying
costs of running the business are under constant review. The impairment charge for loans and receivables of  201 million on an annualised basis represented 2.94% of average loans. The economic conditions in the Republic of Ireland continue to be extremely challenging for customers and the impact of high
unemployment, austerity measures and a stressed property market led to increased default levels and consequently higher impairment charges. EBS is fully committed to supporting customers in financial difficulty. EBS continues to support the residential mortgage market in Ireland through mortgages advanced to first time buyers and home movers. At 31 December 2011, EBS had
total gross mortgages of  13.6 billion. The level of loans advanced in 2011 was lower than in previous years due to subdued demand and the introduction of
tighter credit criteria. EBS continues to have a strong franchise in the retail deposit market and at 31 December 2011 had total customer accounts of  8.5 billion. The impact of successive corporate and sovereign downgrades in the Republic of Ireland resulted in pricing remaining intensely competitive but
retail balances were maintained.








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Groupincludes wholesale treasury activities, central services costs and income on surplus capital.  Group income statement

















2012  m















2011  m

















2010  mNet interest income before ELG

















364















371

















492ELG

















4















(51)

















2Net interest income

















368















320

















494Other income

















(37)















(22)

















(112)Total operating income

















331















298

















382Personnel expenses

















(216)















(117)

















(94)General and administrative expenses

















(167)















(208)

















(157)Depreciation/amortisation

















(31)















(30)

















(90)Total operating expenses

















(414)















(355)

















(341)Operating (loss)/profit before provisions

















(83)















(57)

















41Provisions for liabilities and commitments

































(11)

















Provisions for impairment on financial investments available for sale

















(84)















(270)

















(54)Total provisions

















(84)















(281)

















(54)Operating loss

















(167)















(338)

















(13)Profit on disposal of property

















2

































46(Loss)/profit before disposal of businesses

















(165)















(338)

















33Profit/(loss) on disposal of businesses

































28

















(11)(Loss)/profit before exceptional items

















(165)















(310)

















22Group balance sheet metrics

31 December 2012
 bn

31 December 2011
 bn

31 December 2010
 bnGross loans



















































0.1Net loans



















































0.1Customer accounts

















1.1

































 2012 v 2011 Group reported a loss before
exceptional items for the year to December 2012 of  165 million compared to  310 million for the
year to December 2011. Total operating income of  331 million in
2012 was  33 million higher compared to  298 million in 2011. The increase included higher income from Wholesale Treasury and net gains of  31 million from the disposal of UK and Eurozone securities partially offset by lower income on surplus capital due to a lower interest rate environment. ELG costs reduced by
 55 million in the period primarily due to the reduction in deposits. Total operating expenses in 2012 of  414 million increased from  355 million in 2011. Excluding the realignment of costs between Group and
segments, which was impacted by refinement to the organisation structure, Group costs reduced by  46 million mainly due to lower external provider fees. 2011 included external provider fees in
relation to capital raising and transformation programme. Total provisions reduced to
 84 million in 2012 from  281 million in 2011. The charge in 2011 primarily related to bonds held in
other financial institutions whilst the charge of  84 million in 2012 related to an impairment of the NAMA subordinated bonds.








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2011 v 2010 Group reported a
loss before exceptional items of  310 million compared to a profit of  22 million in 2010. This
out-turn reflected higher impairment on financial investments available for sale and lower profit from wholesale treasury activities. The trends in net interest
income and other income in Group were impacted by the reclassification of income between headings in relation to interest rate hedging. Consequently, it is more meaningful to analyse the trend in total operating income. Total operating income
excluding exceptional items decreased from  382 million in 2010 to  298 million in 2011. This
reflected lower income from wholesale treasury activities partly offset by higher capital income in 2011. Total operating expenses of  355 million in 2011 increased by  14 million compared to 2010. This reflected significant expenditure on
external engagement including external provider fees and regulatory fees. These increases were partly offset by lower depreciation/amortisation in 2011, mainly due to a writedown in 2010 in the value of intangible assets in relation to projects
discontinued. Total provisions increased from  54 million in 2010
to  281 million in 2011. The increase in provision for impairment on financial investments available for sale reflected the impairment of Eurozone bank and sovereign bonds and the impairment of
subordinated bonds received on transfer of assets to NAMA. The profit on disposal of business in 2011 mainly reflects the profit on sale of the investment in AIB
International Financial Services and related companies of  27 million.








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Non-Corecomprises non strategic assets, assets which the bank is committed to deleveraging and activity
relating to the transfer of loans to NAMA.  2012





2011





2010Non-Core income statement





 m





 m





 mNet interest income before ELG





96





211





272ELG





(9)





(63)





(38)Net interest income





87





148





234Other income





(57)





37





115Total operating income





30





185





349Personnel expenses





(66)





(70)





(102)General and administrative expenses





(41)





(62)





(72)Depreciation/amortisation











(2)





(2)Total operating expenses





(107)





(134)





(176)Operating (loss)/profit before provisions





(77)





51





173Provisions for impairment on loans and receivables





(690)





(3,325)





(3,601)Provisions for liabilities and commitments





(5)





(6)





Provisions for impairment on financial investments available for sale





(2)





(6)





(11)Total provisions





(697)





(3,337)





(3,612)Operating loss





(774)





(3,286)





(3,439)Associated undertakings





(5)











Loss before disposal of businesses





(779)





(3,286)





(3,439)Profit on disposal of businesses





2











Loss before exceptional items





(777)





(3,286)





(3,439)31 December

31 December

31 December2012





2011





2010Non-Core balance sheet metrics





 bn





 bn





 bnGross loans(1)





15.6





21.7





28.4Gross loans held for sale to NAMA

















2.2Net loans(2)





9.6





15.0





25.1Net loans held for sale to NAMA

















1.9 (1)Includes other gross loans held for sale, excludes gross loans held for sale to
NAMA. (2)Includes other net loans held for sale, excludes net loans held for sale to NAMA. 2012 v 2011 Non-Core loss before exceptional items amounted to  777 million for 2012, a decrease of 76% on  3,286 million in 2011. Net interest income declined by  61 million (41%), principally due to reductions in Non-Core loan volumes arising from ongoing deleveraging, partly offset by reduced wholesale funding costs and lower ELG costs. Other income decreased by  94 million following the sale of Non-Core businesses and loan breakage and associated costs relating to deleveraging. Total operating expenses for 2012 of 
107 million were 20% lower than 2011. Excluding the realignment of costs between Group and segments, which was impacted by refinement to the organisation structure, Non-Core costs reduced to 
107 million in 2012 from  130 million in 2011 mainly due to lower legal and due diligence costs associated with loans transferred to NAMA and lower operating costs following the sale of Non-Core
portfolios and businesses. Provisions for impairment on loans and receivables were  0.7 billion in 2012, a reduction of  2.6 billion from 2011 levels.
Associated undertakings reflect an impairment charge in respect of a Non-Core held for sale investment. Gross loans of  15.6 billion reduced by  6.1 billion in 2012 reflecting the ongoing deleveraging of Non-Core loans. Total net loans reduced by  15.5 billion since inception of the
deleveraging programme. When EBS non core loans are included, the total loan deleveraging represents c. 89% of the three year deleveraging target of  20.5 billion to be achieved by the end of 2013. The
loss on disposal of loans is treated as an exceptional item and is set out on page 22. Losses incurred to date represent an overall cumulative discount of 10% on disposals/amortisation which were significantly less than the average discount set out
in the Financial Measures Programme process.








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2011 v 2010 Non-Core was
established to formulate and implement AIBs strategy of deleveraging non-core assets through a combination of disposals, run-off, refinancing and other forms of deleveraging. Non-Core assets are managed as a distinct portfolio within the
business by a dedicated management team. The team has an explicit performance mandate to realise optimum value from the portfolio while also preserving AIBs core customer franchise within the overall objective of meeting the defined
deleveraging targets as agreed with the regulatory authorities. To date, AIB has made significant progress in meeting its deleveraging targets. During 2011,
Non-Core net loans reduced by  10.1 billion, notwithstanding the inclusion of  2.2 billion of EBS loans
classified as Non-Core at 31 December 2011. This reduction was achieved through a combination of disposals, targeted non-refinancing of loans, redemptions, scheduled repayments and additional provisioning. This principally occurred in overseas
property, project finance and other leveraged portfolios located in the United States, United Kingdom and Europe. Losses before exceptional items of  3.3 billion in 2011 compared to  3.4 billion in 2010. Net interest income declined by 37% from  234 million to  148 million as loan volumes declined significantly in line with the banks ongoing deleveraging strategy. Lower fee income following
the sale of Non-Core businesses and losses on credit derivative contracts contributed to the fall in other income. Total operating expenses fell by 24%, principally
impacted by lower staff numbers, staff related costs and operating expenses following the sale of Non-Core businesses. The reduction in credit provisions from  3.6 billion in 2010 to  3.3 billion in 2011 reflects lower NAMA loans in 2011. Excluding credit provisions on NAMA
loans, credit provisions increased from  2.1 billion in 2010 to  3.2 billion in 2011. Continuing credit stresses, particularly in the property and development
portfolios, contributed to this increase.








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Capital The objectives of the
Groups capital management policy are to at all times comply with regulatory capital requirements and to ensure that the Group has sufficient capital to cover the current and future risks inherent in its business and to support its future
development. The Group does this through an Internal Capital Adequacy Assessment Process (ICAAP), which is subject to supervisory review and evaluation. The minimum regulatory capital requirements set by the Central Bank, which reflect
the requirements of the Capital Requirements Directive (CRD) established a floor of 4% under which the core tier 1 capital ratio must not fall (8% for total capital ratio). Following the Prudential Capital Assessment Review
(PCAR) in March 2011, the Central Bank announced a new minimum capital target for AIB of 10.5% core tier 1 capital ratio in a base scenario and 6% core tier 1 capital ratio in a stressed scenario. These target ratios form the basis of
the Groups capital management policy and are the capital adequacy requirements effective as at 31 December 2012. The Groups capital base underwent
significant changes in 2011, the most significant of which was the recapitalisation of the Group by the Irish Government following the completion of the Central Banks Financial Measures Programme. As a result of the PCAR 2011 exercise, AIB was
required to raise capital of  14.8 billion which was completed in July 2011 via the following: 

Liability management exercise  2.1 billion 

Equity placing to NPRFC  5.0 billion 

Contingent capital issue  1.6 billion 

Capital contribution  6.1 billion In May 2012, following an Irish High Court order,  5.9 billion was
transferred into revenue reserves.  2 billion of share premium was cancelled and  3.9 billion was reduced from capital redemption reserves. This had no impact
on the Groups capital base in 2012. The Groups core tier 1 capital ratio was 15.1% as at 31 December 2012, down from 17.9% as at 31 December 2011 (see commentary on page 44). Capital Requirements Directive (CRD) The CRD, which came into
force on 1 January 2007, is the EU directive that establishes the regulatory capital adequacy requirements for credit institutions. It is set out in three distinct pillars. Pillar 1 is concerned with the calculation of the minimum
capital requirements for credit risk, market risk and operational risk. It introduced greater granularity and sensitivity in risk weightings, including for certain portfolios risk weightings determined by regulatory approved internal rating models
(known as the Internal Ratings Based approach). Under Pillar 2 banks are required to estimate their own internal capital requirements to cover all material risks (not limited to the pillar 1 risks) as part of their ICAAP which is then subject to
supervisory review and evaluation (known as the SREP). Pillar 3 (market discipline) involves the disclosure of a suite of qualitative and quantitative risk management information to the market. The Group issued its most
recent pillar 3 disclosures in June 2012. Since it first came into effect the CRD has been amended a number of times (CRD II and CRD III).
These amendments reflected in the main; new requirements on hybrid tier one capital instruments; updates to the large exposures regime; improved risk management requirements for securitisations; and changes to trading book capital requirements.
These amendments have not had a material impact on the capital position of the Group. In July 2011 a further amendment to the CRD was proposed by the European Commission to implement Basel 3 in Europe. This new directive, CRD IV, was due to be in
place from 1 January 2013. The implementation of CRD IV has been delayed from its original target implementation date, as drafting of the underlying regulations and directive has not completed. Notwithstanding this it is still expected to come
into effect on a phased basis in 2013, fully effective from 1st January 2018. It is based on the Basel 3 recommendations, which were developed in response to the recent banking crisis and aims to strengthen the capital adequacy of banks by
increasing: 

the quality of eligible capital the banks can include in their capital base for capital adequacy purposes; and 

the quantity of capital held by setting significantly higher minimum capital ratios and identifying capital buffers that can be imposed by national supervisors according to their assessment of risk exposure. Based on our current interpretation of the draft CRD IV regulations, the Groups pro forma Common Equity Tier 1 (CET 1) ratio,
including the 2009 Preference Shares (which will continue to be considered as CET 1 until 31 December 2017), is estimated at 9.7% as at 31 December 2012.








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The following table summarises the Group capital position as at 31 December 2012 and 2011:  2012


2011Capital adequacy information*

 m


 mTier 1Paid up share capital and related share premium


8,096



10,096Eligible reserves


3,022



5,313Regulatory adjustments


(312
)


(263)Core tier 1 capital


10,806



15,146Supervisory deductions from tier 1Unconsolidated financial investments


(6
)


(2)Securitisations


(45
)


(79)Total tier 1 capital (Core tier 1 capital including supervisory deductions)


10,755



15,065Tier 2Eligible reserves


125



125Credit provisions


682



795Subordinated term loan capital


1,154



1,472Supervisory deductions from tier 2 capital


(51
)


(81)Total tier 2 capital


1,910



2,311Gross capital


12,665



17,376Supervisory deductions


(74
)


(74)Total capital


12,591



17,302Risk weighted assets (unaudited)Credit risk


66,335



77,863Market risk


616



560Operational risk


4,466



5,856Total risk weighted assets


71,417



84,279Capital ratios (unaudited)Core tier 1


15.1
%


17.9
%Total


17.6
%


20.5
% Risk weighted assets (RWAs) reduced by
 12.9 billion in the year to 31 December 2012. The credit RWAs reduction of  11.5 billion is primarily a
result of deleveraging, amortisations and increased provisions, which were offset, to a degree, by deterioration in credit quality, particularly in the mortgage portfolio. The RWAs attached to Operational risk reduced by  1.4 billion in 2012 reflecting the reduced levels of income in the annual calculation, arising, in the main, from disposals and the impact of the economic decline in the last three years. Core tier 1 capital has reduced by  4.3 billion in the period; this is
primarily due to the attributable loss for the period. The impact of this movement together with the decrease in RWAs is a reduction in the core tier 1 capital ratio from 17.9% at 31 December 2011 to 15.1% at 31 December 2012. The core
tier 1 ratio is in excess of the 10.5% target core tier 1 requirement as announced under the Financial Measures Programme in March 2011. Total capital reduced by  4.7 billion in the year to 31 December 2012, due to the  4.3 billion movements in core tier 1 capital
described above and a  0.4 billion reduction in tier 2 capital. The reduction in tier 2 capital results from the continued amortisation of the contingent capital instrument that is within five years to
maturity. The contingent capital instrument is due to mature in July 2016. The impact of this movement together with the decrease in RWAs is a reduction in the total capital ratio from 20.5% at 31 December 2011 to 17.6% at 31 December
2012.








|   |  |                                                             
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|   |  | *Forms an integral part of the audited financial statements.
|44 |  |                                                             



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The Groups accounting policies are set out on pages 193 to 217 of this report. The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of
certain assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be reasonable under the
circumstances. Since management judgement involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates. The accounting policies that are deemed critical to AIBs results and financial position, in terms of the materiality of the items to which the policy is applied
and the estimates that have a significant impact on the financial statements are set out in this section. In addition, estimates with a significant risk of material adjustment in the next year are also discussed. Going concern* The financial statements have been prepared on a going concern
basis. In making its assessment of the Groups ability to continue as a going concern, the Board of Directors have taken into consideration the significant economic and market risks and uncertainties that continue to impact the Group. These
include the ability to access Eurosystem funding and Central Bank liquidity facilities to meet liquidity requirements. In addition, the Directors have considered the current level of capital and the potential requirement for capital in the period of
assessment. Furthermore, the Directors considered the risks and uncertainties impacting the Eurozone and have taken into account the developments taken at EU level which saw a marked easing of the Eurozone sovereign debt crisis and improvements in
conditions in Eurozone financial markets during the second half of 2012. Loan impairment* AIBs accounting policy for impairment of financial assets is set out in accounting policy number 15. The provisions for impairment on loans and receivables at
31 December 2012 represent managements best estimate of the losses incurred in the loan portfolios at the reporting date. The estimation of loan losses
is inherently uncertain and depends upon many factors, including loan loss trends, portfolio grade profiles, local and international economic climates, conditions in various industries to which AIB Group is exposed and other external factors such as
legal and regulatory requirements. Credit risk is identified, assessed and measured through the use of credit rating and scoring tools. The ratings influence the
management of individual loans. Special attention is paid to lower quality rated loans and when appropriate, loans are transferred to specialist units to help avoid default, or where in default, to help minimise loss. The credit rating triggers the
impairment assessment and if relevant the raising of specific provisions on individual loans where there is doubt about their recoverability. The management process
for the identification of loans requiring provision is underpinned by independent tiers of review. Credit quality and loan loss provisioning are independently monitored by credit and risk management on a regular basis. All AIB market segments assess
and approve their provisions and provision adequacy on a quarterly basis. These provisions are in turn reviewed and approved by the AIB Group Credit Committee on a quarterly basis with ultimate Group levels being approved by the Audit Committee and
the Board. Key assumptions underpinning the Groups estimates of collective and IBNR provisioning are back tested with the benefit of experience and revisited
for currency on a regular basis. Specific provisions A specific
provision is made against problem loans when, in the judgement of management, the estimated repayment realisable from the obligor, including the value of any security available, is likely to fall short of the amount of principal and interest
outstanding on the obligors loan or overdraft account. The amount of the specific provision made in the Groups consolidated financial statements is intended to cover the difference between the assets carrying value and the present
value of estimated future cash flows discounted at the assets original effective interest rates. Specific provisions are created for cases that are individually significant (i.e. above certain thresholds), and also collectively for assets that
are not individually significant. The amount of specific provision required on an individually assessed loan is highly dependent on estimates of the amount of
future cash flows and their timing. Individually insignificant impaired loans are collectively evaluated for impairment. As this process is model driven, the total amount of the Groups impairment provisions on these loans is somewhat uncertain
as it may not totally reflect the impact of the prevailing market conditions. Changes in the estimate of the value of security and the time it takes to receive
those cash flows could have a significant effect on the amount of impairment provisions required and on the income statement expense and on the statement of financial position, for example, in assessing the value of residential property held as
collateral for impaired mortgage loans in Ireland, AIB uses a peak to trough house price decline of 55% as a base. In certain circumstances, realisation costs of 10% to 20% are also deducted. *Forms an integral part of the audited financial statements.








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Specific provisions (continued) For larger impaired loans (individually significant) other factors such as recent transactional evidence and/or local knowledge are considered, which can result in higher
discounts to collateral values. CSO statistics for December 2012 outline a peak to trough decline of 49.6% for residential property, nationally. If prices were to decline by a further 5% from AIBs assumed values and this decline
fell directly through to the collateral values of its impaired mortgage loans in Ireland, the additional impairment provision impact would be in the range of approximately
 240 million to  280 million. The construction and property loan portfolio continues to be adversely impacted by the downturn in both the Irish and UK economies. Collateral values have significantly
reduced and, particularly in Ireland, market activity is very low in the sector. Accordingly, the estimation of cash flows likely to arise from the realisation of such collateral is subject to a very high degree of uncertainty. Incurred but not reported provisions Incurred but not reported
(IBNR) provisions are also maintained to cover loans which are impaired at the reporting date and, while not specifically identified, are known from experience to be present in any portfolio of loans. IBNR provisions are maintained at
levels that are deemed appropriate by management having considered: credit grading profiles and grading movements; historic loan loss rates; changes in credit management; procedures, processes and policies; levels of credit management skills; local
and international economic climates; portfolio sector profiles/industry conditions; and current estimates of loss in the portfolio. The total amount of impairment
loss in the Groups non-impaired portfolio and therefore the adequacy of the IBNR allowance is inherently uncertain. There may be factors in the portfolio that have not been a feature of the past and changes in credit grading profiles and
grading movements may lag the change in the credit profile of the customer. In addition, current estimates of loss within the earning portfolio and the period of time it takes following a loss event for an individual loan to be recognised as
impaired (emergence period) are subject to a greater element of estimation due to the speed of change in the economies in which the Group operates and the unprecedented market conditions. The potential impact of an increase of one month in the emergence period could result in additional impairment provisions of c.
 40 million to  50 million relating to the residential mortgage portfolio and c.  80 million to  90 million for the non-mortgage portfolios. Forbearance The Groups accounting policy for forbearance is set
out in accounting policy number 15 Impairment of financial assets which incorporates forbearance. The Group has developed a number of forbearance
strategies for both short-term and longer-term solutions to assist customers experiencing financial difficulties. The forbearance strategies involve modifications to contractual repayment terms in order to improve the collectability of outstanding
debt, to avoid default, and where relevant, to avoid repossessions. The longer-term advanced forbearance strategies are currently in the process of being rolled out to relevant residential mortgage customers in Ireland. Accordingly, a higher level
of judgement and estimation is involved in determining their effects on impairment provisions. Further information on forbearance strategies is set out in the Risk management section of this report. Deferred taxation* The Groups accounting policy for deferred tax is set
out in accounting policy number 13. Details of the Groups deferred tax assets and liabilities are set out in note 38. Deferred tax assets are recognised for
unused tax losses to the extent that it is probable (defined for this purpose as more likely than not) that there will be sufficient future taxable profits against which the losses can be used. For a company with a history of recent losses, there
must be convincing other evidence to underpin this assessment. The recognition of the deferred tax asset relies on the assessment of future profitability and the sufficiency of those profits to absorb losses carried forward. It requires significant
judgements to be made about the projection of long-term future profitability because of the period over which recovery extends. In assessing the future
profitability of the Group, the Board has considered a range of positive and negative evidence for this purpose. Among this evidence, the principal positive factors include the: 

financial support provided by the Irish Government to AIB as agreed with the EU/IMF; 

Irish Governments committed support to AIB and its nomination of the Group as one of two pillar banks in the smaller reconstructed Irish banking sector; 

updated restructuring plan submitted to the European Commission in September 2012, targeting a return to profitability in 2014 and the ability to grow profits thereafter; 

financial support provided to the Irish State under the EU/IMF programme; 

absence of any expiry dates for Irish and UK tax losses;








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Deferred taxation*(continued) 

non-enduring nature of the loan impairments at levels which resulted in recent years losses; and 

external forecasts for Ireland and the UK which indicate continued economic recovery through the period of the medium-term financial plan. Against this, there are a number of uncertainties inherent in any long-term financial assumptions and projections and other negative evidence, including: 

continued funding and margin pressures; 

reduced size of the Groups operations following re-structuring; 

recent reductions in a number of external forecasts of near-term economic growth rates in Ireland and the UK; and 

instability in the Eurozone and in the Irish and global economies. The Groups strategy and its medium term
financial plan targets a return to profitability by 2014 and growth in profitability thereafter. Taking account of all relevant factors, and in the absence of any
expiry date for tax losses in Ireland, the Group further believes that it is more likely than not that there will be future profits in the medium term and beyond, in the relevant Irish Group companies against which to use the tax losses. Assuming a
sustainable market return on equity over the long term for future profitability levels in Ireland, it will take an extended time period, in excess of 20 years, to absorb such tax losses. Notwithstanding the absence of any expiry date for tax losses in the UK, AIB has concluded that the recognition of deferred tax assets in its UK subsidiary be limited to
the amount projected to be realised within a time period of 15 years. This is the timescale within which the Group believes that it can assess the likelihood of its profits arising as being more likely than not. However, for certain other subsidiaries and branches, the Group has also concluded that it is more likely than not that there will be insufficient profits to support
recognition of deferred tax assets. The amount of recognised deferred tax assets arising from unused tax losses amounts to
 3,904 million of which  3,270 million relates to Irish tax losses and
 634 million relates to United Kingdom tax losses. IAS 12 does not permit a company to apply present value
discounting to its deferred tax assets or liabilities, regardless of the estimated timescales over which those assets or liabilities are projected to be realised. AIB Groups deferred tax assets are projected to be realised over a long
timescale, benefiting from the absence of any expiry date for Irish or UK tax losses. As a result, the carrying value of the deferred tax assets on the statement of financial position does not reflect the economic value of those assets. Determination of fair value of financial instruments* The Groups
accounting policy for the determination of fair value of financial instruments is set out in accounting policy number 16. The best evidence of fair value is quoted
prices in an active market. The absence of quoted prices due to the deterioration of the worlds financial markets increases reliance on valuation techniques and requires the use of judgement in the estimation of fair value. This judgement
includes but is not limited to: evaluating available market information; determining the cash flows for the instruments; identifying a risk free discount rate and applying an appropriate credit spread. Valuation techniques that rely to a greater extent on non-observable data require a higher level of management judgement to calculate a fair value than those based
wholly on observable data. The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal
review and approval procedures. Given the uncertainty and subjective nature of valuing financial instruments at fair value, any change in these variables could give rise to the financial instruments being carried at a different valuation, with a
consequent impact on shareholders equity and, in the case of derivatives and contingent capital instruments, the income statement. NAMA senior bonds
designation and valuation* The Groups accounting policy for NAMA senior bonds is set out in accounting policy number 17. These bonds are separately
disclosed in the statement of financial position. NAMA senior bonds are designated as loans and receivables as they meet the criteria to be so designated. The bases for measurement, interest recognition and impairment for NAMA senior bonds are the same as those for loans and receivables (see accounting policy numbers 6,
15, and 18). There is no active market for the NAMA senior bonds, accordingly, the fair value at take on was determined using a valuation technique.








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NAMA senior bonds designation and valuation* (continued) The absence of quoted prices in an active market required an increased use of management judgement in the estimation of fair value. This judgement included, but was not
limited to: evaluating available market information; determining the cash flows generated by the instruments; identifying a risk free discount rate and applying an appropriate credit spread. The valuation technique and critical assumptions used were subject to internal review and approval procedures. While the Group believes its estimates of fair value are
appropriate, the use of different measurements, valuation techniques or assumptions could have given rise to the NAMA senior bonds being measured at a different valuation at initial recognition, with a consequent impact on the income statement. NAMA senior bonds are subject to the same credit review processes and procedures as for loans and receivables (accounting policy number 17). Retirement benefit obligations* The Groups accounting policy for
retirement benefit plans is set out in accounting policy number 11. The Group provides a number of defined benefit and defined contribution retirement benefit
schemes in various geographic locations, the majority of which are funded. In relation to the defined benefit schemes, a full actuarial valuation is undertaken every three years and is updated to reflect current conditions in the intervening
periods. Scheme assets are valued at fair value. Scheme liabilities are measured on an actuarial basis, using the projected unit method and discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to
the liability. Actuarial gains and losses are recognised immediately in the statement of comprehensive income. In calculating the scheme liabilities and the charge
to the income statement, the Directors have chosen a number of financial and demographic assumptions within an acceptable range, under advice from the Groups actuaries which include price inflation, pension increases, earnings growth and the
longevity of scheme members. The impact on the income statement and statement of financial position could be materially different if a different set of assumptions were used. The assumptions adopted for the Groups pension schemes are set out
in note 12 to the financial statements, together with a sensitivity analysis of the scheme liabilities to changes in those assumptions. In June 2012, the Group
announced a pay and benefits review which proposed amendments to the pay and benefits of staff. At 31 December 2012, certain elements of this review had already been implemented and their impact was recognised in the financial statements. In
relation to the proposed closure of the defined benefit schemes to further accrual, whilst the Group had signalled its intentions in this regard, this had not occurred at 31 December 2012, therefore, its impact was not recognised in the
financial statements. Termination benefits provisions The
Groups accounting policy for termination benefits is set out in accounting policy number 11. The Group announced a voluntary severance programme in May 2012
which included both an early retirement scheme and a voluntary severance scheme. The programme is scheduled to run until December 2013, however, a sizeable number of staff have already left the Group. The income statement has been charged for the
expense relating to all staff expected to leave under this programme. The provisions at 31 December 2012 are based on managements best estimate of the cost for the expected level of staff leaving in 2013 based on currently known facts and
expectations. Basis of consolidation* For third party acquisitions,
assets acquired and liabilities assumed are measured at their acquisition date fair values. Where these acquisitions relate to the acquisition of a business between
entities under the control of the Irish Government, assets acquired and liabilities assumed are measured at their carrying value in the books of the transferor at the date of transfer, adjusted for any differences in accounting policies.








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Customer accounts The following
table analyses average deposits by customers based on the location of the offices in which the deposits are recorded for 2012, 2011 and 2010, with 2010 showing continuing and discontinued operations separately. The discontinued operations were
disposed of on 1 April 2011.  2012



2011



2010Total



Total

Continuing

Discontinuedoperations

operations m



 m



 m



 mDomestic officesCurrent accounts



11,251



11,179



11,641



DepositsDemand



7,311



5,388



6,110



Time



30,986



31,068



30,984



49,548



47,635



48,735



Foreign officesCurrent accounts



4,326



4,144



5,403



4,335Deposits:Demand



2,368



1,920



2,611



Time



6,646



6,759



11,525



5,92013,340



12,823



19,539



10,255Total



62,888



60,458



68,274



10,255 Current accounts are both interest bearing and non-interest bearing checking accounts raised through AIB Groups branch network in
Ireland, Northern Ireland and Britain. Poland, which was presented as a discontinued operation in 2010, was disposed of on 1 April 2011. Demand deposits
attract interest rates which vary from time to time in line with movements in market rates and according to size criteria. Such accounts are not subject to withdrawal by cheque or similar instrument and have no fixed maturity dates. Time deposits are generally larger, attract higher rates of interest than demand deposits and have predetermined maturity dates. Customer accounts by currency The following table analyses customer deposits
by currency as at 31 December:  2012



2011



2010Total



Total



Continuing



Discontinuedoperations



operations m



 m



 m



 mEuro



49,755



46,376



38,715



908US dollar



1,145



1,197



1,422



203Sterling



12,567



12,974



11,869



57Polish zloty



2



3







9,317Other currencies



141



124



383



11Total



63,610



60,674



52,389



10,496








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Large time deposits and certificates of deposit The following tables show details of the Groups large time deposits and certificates of deposit (US$ 100,000 and over or the equivalent in other currencies) by time
remaining until maturity as at 31 December 2012, 2011 and 2010. The analysis for 2010 shows continuing operations and discontinued operations separately. The discontinued operations were disposed of on 1 April 2011.  20123 monthsor less


After 3 monthsbut within6 months


After 6 monthsbut within12 months


After12 months


Total m


 m


 m


 m


 mLarge time depositsDomestic offices


10,570



4,574



5,622



2,851



23,617Foreign offices


1,895



707



890



366



3,858Certificates of depositDomestic offices


8



23



3







34Foreign offices


















Total


12,473



5,304



6,515



3,217



27,50920113 monthsor less


After 3 monthsbut within6 months


After 6 monthsbut within12 months


After12 months


Total m


 m


 m


 m


 mLarge time depositsDomestic offices


8,479



2,867



3,389



1,953



16,688Foreign offices


2,912



935



1,464



357



5,668Certificates of depositDomestic offices


36



5



17







58Foreign offices


194







19







213Total


11,621



3,807



4,889



2,310



22,627








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Large time deposits and certificates of deposit  20103 monthsor less


After 3 monthsbut within6 months


After 6 monthsbut within12 months


After12 months


TotalContinuing operations

 m


 m


 m


 m


 mLarge time depositsDomestic offices


8,244



1,938



1,737



450



12,369Foreign offices


3,301



1,126



902



883



6,212Certificates of depositDomestic offices


















Foreign offices


38







10



206



254Total


11,583



3,064



2,649



1,539



18,83520103 monthsor less


After 3 monthsbut within6 months


After 6 monthsbut within12 months


After12 months


TotalDiscontinued operations

 m


 m


 m


 m


 mLarge time depositsDomestic offices


















Foreign offices


1,752



473



250



18



2,493Certificates of depositDomestic offices


















Foreign offices


















Total


1,752



473



250



18



2,493








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Short-term borrowings The
following table shows details of short-term borrowings of AIB Group for the years ended 31 December 2012, 2011 and 2010. The analysis for 2010 shows continuing operations and discontinued operations separately. It is presented on a total Group
basis for 2012 and 2011.  2012


2011


2010Total


Total


Continuingoperations


Discontinued operations m


 m


 m


 mCommercial Paper:End of year outstandings










712



Highest month-end balance






423



4,092



Average balance






35



2,622



Average rate of interestAt end of year










1.32
%


During the year






1.25
%


0.83
%


Repurchase agreements:End of year outstandings


16,700



32,878



40,660



409Highest month-end balance


32,845



49,088



43,441



1,314Average balance


21,891



39,646



28,777



728Average rate of interestAt end of year


0.58
%


0.98
%


1.66
%


3.19%During year


0.78
%


1.33
%


0.96
%


2.89%Other short-term borrowings:End of year outstandings


4,283



6,752



11,326



47Highest month-end balance


8,499



11,987



26,102



209Average balance


7,470



7,363



17,807



132Average rate of interestAt end of year


3.30
%


2.21
%


2.09
%


1.08%During year


3.51
%


1.99
%


1.33
%


1.71% Average interest rates during the year are computed by dividing total interest expense by the average amount borrowed. Average interest
rates at the year end are average rates for a single day and as such may reflect one-day market distortions which may not be indicative of generally prevailing rates. Other short-term borrowings consist principally of borrowings in the
inter-bank market included within Deposits by central banks and banks and Debt securities in issue in the consolidated financial statements and generally have remaining maturities of one year or less. The maturity profiles of
the above outstandings are disclosed in note 60 of the consolidated financial statements.








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Available for sale debt securities The following tables categorise AIB Groups available-for-sale debt securities by contractual residual maturity and weighted average yield at 31 December 2012,
2011 and 2010 with the analysis for 2010 showing continuing operations and discontinued operations separately. There were no discontinued operations in either 2012 or 2011.  2012After 1 but


After 5 butWithin 1 year


within 5 years


within 10 years


After 10 years m


Yield %


 m


Yield %


 m


Yield %


 m


Yield %Irish Government securities










3,563



5.7



3,784



5.0



241



5.3Euro government securities


67



1.7



833



1.9



534



2.7



320



3.5Non Euro government securities


56



0.4



344



1.5



150



3.5



162



3.9Supranational banks and government agencies


83



0.9



1,491



1.7



98



2.0



10



0.6Collateralised mortgage obligations










13



1.2



9



1.2







Other asset backed securities










53



0.4



3



0.3



864



0.4Euro bank securities


932



3.5



2,048



3.1



90



2.7







Non Euro bank securities


35



4.0



126



2.8















Euro corporate securities


26



3.4



45



6.6



8



6.2



8



7.4Non Euro corporate securities


44



4.1



82



4.1



39



6.4



28



6.0Other investments










12



6.9















Total


1,243



3.1



8,610



3.8



4,715



4.6



1,633



2.22011After 1 but


After 5 butWithin 1 year


within 5 years


within 10 years


After 10 years m


Yield %


 m


Yield %


 m


Yield %


 m


Yield %Irish Government securities


693



3.8



2,204



6.9



2,113



6.6



207



6.5Euro government securities


137



2.5



810



2.0



621



2.9



292



3.8Non Euro government securities


63



0.7



361



1.7



417



3.7



429



3.9Supranational banks and government agencies


131



3.7



896



2.0



107



2.6



14



1.0Collateralised mortgage obligations










9



1.9



10



3.9



489



0.6Other asset backed securities










29



2.3



32



2.0



1,149



2.0Euro bank securities


968



2.3



1,896



4.3



191



4.1







Non Euro bank securities


232



1.7



200



2.9



44



3.0







Euro corporate securities


17



3.1



74



6.4



12



9.2



7



8.3Non Euro corporate securities


35



2.7



154



4.9



65



8.0



25



6.3Other investments










12



6.9















Total


2,276



2.7



6,645



4.4



3,612



5.3



2,612



2.7








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Available for sale debt securities(continued) 2010After 1 but


After 5 butWithin 1 year


within 5 years


within 10 years


After 10 yearsContinuing operations

 m


Yield %


 m


Yield %


 m


Yield %


 m


Yield %Irish Government securities


908



3.1



1,471



4.2



1,930



6.1







Euro government securities


754



3.6



1,853



2.2



527



2.5



383



3.8Non Euro government securities


589



4.7



208



2.7



538



2.3



358



4.8Supranational banks and government agencies


271



5.0



883



2.2



163



2.2







U.S. Treasury & U.S. Government agencies


142



3.6



















41



0.6Collateralised mortgage obligations










33



1.7



11



2.7



841



0.6Other asset backed securities










7



1.7



171



1.0



2,382



1.6Euro bank securities


1,116



2.5



2,293



2.4



547



3.4



10



4.8Non Euro bank securities


702



3.8



599



2.1



132



11.1







Euro corporate securities


17



1.9



152



6.0



11



8.1



7



8.0Non Euro corporate securities


48



7.5



280



5.4



83



7.2



38



6.7Other investments










12



6.9















Total


4,547



3.5



7,791



2.9



4,113



4.7



4,060



1.92010After 1 but


After 5 butWithin 1 year


within 5 years


within 10 years


After 10 yearsDiscontinued operations

 m


Yield %


 m


Yield %


 m


Yield %


 m


Yield %Euro government securities


30



3.5



40



4.7















Non Euro government securities


341



2.6



897



3.6



388



4.7







U.S. Treasury & U.S. Government agencies


5



4.9























Euro bank securities










13



5.8



6



6.3







Total


376



2.7



950



3.6



394



4.8







 Financial investments available for sale unrealised gains/losses The following table gives the fair value of financial investments available for sale by major classifications together with the gross unrealised gains and losses at
31 December 2010. See note 33 of the financial statements for this analysis for 2012 and 2011.  2010Unrealised


Unrealised


Net unrealised





NetFair value


gross gains


gross losses


gains/(losses)


Tax effect


after taxContinuing operations

 m


 m


 m


 m


 m


 mDebt securitiesIrish Government securities


4,309







(632
)


(632
)


111



(521
)Euro government securities


3,517



44



(50
)


(6
)


1



(5
)Non Euro government securities


1,693



88



(3
)


85



(17
)


68Supranational banks and government agencies


1,317



15



(8
)


7



(1
)


6U.S. Treasury & U.S. Government agencies


183



2







2







2Collateralised mortgage obligations


885



1



(22
)


(21
)


3



(18
)Other asset backed securities


2,560



1



(291
)


(290
)


36



(254
)Euro bank securities


3,966



25



(79
)


(54
)


7



(47
)Non Euro bank securities


1,433



6



(87
)


(81
)


10



(71
)Euro corporate securities


187



10



(3
)


7



(2
)


5Non Euro corporate securities


449



27



(3
)


24



(6
)


18Other investments


12



















Total debt securities


20,511



219



(1,178
)


(959
)


142



(817
)Equity securitiesEquity securities - NAMA subordinated bonds


169







(51
)


(51
)


6



(45
)Equity securities - other


145



23



(11
)


12



(2
)


10Total financial investments available for sale


20,825



242



(1,240
)


(998
)


146



(852
)








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| |  | Financial review - 8. Financial investments held to maturity |  | LOGO






The following table categorises the Groups financial investments held to maturity, by maturity and weighted average
yield at 31 December 2010, for discontinued operations (there were no financial investments held to maturity for continuing operations in 2010) and there were no financial investments held to maturity at either 31 December 2012 or
31 December 2011.  2010After 1 but


After 5 butWithin 1 year


within 5 years


within 10 years


After 10 yearsDiscontinued operations

 m


Yield %


m


Yield %


m


Yield %


 m


Yield %Non Euro government securities


283



4.3



901



5.2



227



5.6
















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|LOGO |  | Financial review - 9. Contractual obligations |  | 






Financial liabilities by undiscounted contractual cash flows are set out in note 61 to the consolidated financial
statements. The tables in this section provide details of the contractual obligations of the Group as at 31 December 2012, 2011 and 2010 in respect of capital expenditure and operating lease commitments. The analysis for 2010 shows continuing
operations and discontinued operations separately.  2012Less than1 year


1 to3 years


3 to5 years


After 5years


Total m


 m


 m


 m


 mContractual obligationsCapital expenditure commitments


7















7Operating leases


73



135



124



507



839Total


80



135



124



507



8462011Less than1 year


1 to3 years


3 to5 years


After 5years


Total m


 m


 m


 m


 mContractual obligationsCapital expenditure commitments


11















11Operating leases


80



134



126



557



897Total


91



134



126



557



9082010Less than1 year


1 to3 years


3 to5 years


After 5years


TotalContinuing operations

 m


 m


 m


 m


 mContractual obligationsCapital expenditure commitments


20















20Operating leases


73



127



107



546



853Total


93



127



107



546



8732010Less than1 year


1 to3 years


3 to5 years


After 5years


TotalDiscontinued operations

 m


 m


 m


 m


 mContractual obligationsCapital expenditure commitments


9















9Operating leases


37



63



49



77



226Total


46



63



49



77



235








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Page1. Risk factors


582. Framework2.1



Risk management framework


652.2



Risk appetite


652.3



Risk governance and risk management organisation


652.4



Risk identification and assessment process


672.5



Stress and scenario testing


672.6



Future developments


673. Individual risk types3.1



Credit risk


69Credit exposure


69Credit risk management


72Credit profile of the loan portfolio:


79Credit profile of residential mortgages


92Segmental analysis of the loan portfolio


112Credit ratings of total loans and receivables to customers


122Analysis of credit risk - 5 year summaries


125Financial investments available for sale


1443.2



Liquidity risk


1473.3



Market risk


1483.4



Structural foreign exchange risk


1523.5



Operational risk


1533.6



Regulatory compliance risk


1543.7



Pension risk


1553.8



Parent company risk information


156








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|LOGO |  | Risk management  1. Risk factors






Introduction The Groups
approach to identifying and monitoring the principal risks and uncertainties it faces is informed by risk factors. All of the Groups activities involve, to varying degrees, the measurement, evaluation, acceptance and management of risks which
are assessed on a Group wide basis. Certain risks can be mitigated by the use of safeguards and appropriate systems and actions which form part of the Groups risk management framework. The principal risks and uncertainties facing the Group
fall under the following broad categories: 

Macro-economic and geopolitical risk; 

Macro-prudential, regulatory and legal risks to the business model; and, 

Risks relating to business operations, governance and internal control systems. The risks pertaining to each of these
categories are set out in summary form in the box below and described in more detail in subsequent pages.  Macro-economic and geopolitical risk

Ireland depends materially on financial support from the International Monetary Fund
(IMF), the European Union (EU) and the European Central Bank (ECB) and may be adversely affected by the conditions attaching to the financial support provided by these institutions.

The Groups access to funding and liquidity is adversely affected by the financial
instability within the Eurozone.

Contagion risks could disrupt the markets and adversely affect the Groups financial
condition.

Constraints on liquidity and market reaction to factors affecting Ireland and the Irish
economy have created an exceptionally challenging environment for the management of the Groups liquidity.

The Groups markets, particularly for retail deposits, are at risk from more intense
competition.

The Groups business may be adversely affected by a further deterioration in economic and
market conditions.

General economic conditions continue to be very challenging for mortgage and other lending to
customers and increase the risk of payment default.

The depressed Irish property prices may give rise to increased losses by the
Group.

The Group faces market risks, including non-trading interest
rate risk.Macro-prudential, regulatory and legal risks to the business model

Extensive powers continue to be conferred on the Irish Minister for Finance.

The Group is subject to rigorous and demanding Government supervision and
oversight.

The Group may be subject to the risk of having insufficient capital to meet increased minimum
regulatory requirements.

The Groups business activities must comply with increasing levels of regulation
introduced as a result of failings in financial markets.

The Groups participation in the National Asset Management Agency (NAMA)
Programme gives rise to certain residual financial risks.

The Group may be adversely affected by further austerity and budget measures introduced by the
Irish Government.

The value of certain financial instruments recorded at fair value is determined using
financial models incorporating assumptions, judgements and estimates that may change over time, or may ultimately not turn out to be accurate, and the value realised by the Group for these assets may be materially different from their current, or
estimated, fair value.

The recoverability of the Groups deferred tax assets
depend substantially on the generation of future profits over an extended number of years. Changes in tax legislation, regulatory requirements or accounting standards could adversely affect the basis of recognition.Risks related to our business operations, governance and internal control systems

The Group is subject to inherent credit risks in respect of customers and counterparties which could adversely affect the
Groups results, financial condition and further prospects.

The Group faces heightened operational risks.

The restructuring of the Group entails risks.

The Groups risk management strategies and techniques may be unsuccessful.

There is always a risk of litigation arising from the
Groups activities. This list of principal risks and uncertainties should not be considered as exhaustive and other factors, not yet identified, or not
currently considered material, may adversely affect the Group. Macro-economic and geopolitical risk Ireland depends materially on financial support from the International Monetary Fund (IMF), the European Union (EU) and the European Central
Bank (ECB) and may be adversely affected by the conditions attaching to the financial support provided by these institutions The IMF/EU/ECB
Programme of Financial Support for Ireland provides financial assistance to the Irish State. The Programme includes a fundamental downsizing and reorganisation of the banking sector, complemented by the availability of capital to underpin bank
solvency. The Irish State committed to ensure continued compliance with the minimum core tier 1 capital ratio of 10.5% for all PCAR








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banks (which includes AIB). In addition, the Irish State must report on a series of actions agreed with the EU /IMF on financial sector reforms in Ireland under headings such as
deleveraging, funding and liquidity monitoring, asset quality, reorganisation and financial supervision. As part of a quarterly IMF/EU/ECB mission to Ireland, AIB is required to meet with representatives of the IMF, EU and ECB to discuss progress on
the restructuring of AIB. In addition, AIB is required to submit a formal restructuring plan to the authorities which sets out the Groups path to viability and presents the Groups plans on deleveraging, funding and liquidity, asset
quality, and reorganisation. A failure to meet the specified conditions of the financial support and achieve the associated fiscal targets on time could lead to a
termination of the financial support which could have a material adverse effect on the financial sector in Ireland and on the Group. The Groups access to
funding and liquidity is impacted by the financial instability within the Eurozone Economic, monetary and political conditions, although improved, remain
unstable within a number of the Eurozone members. There is a risk that certain EU/Eurozone members may not be able to support their debt burdens and meet future financial obligations, which may then be reflected in a further downgrade of sovereign
credit ratings. This could adversely affect the cost and availability of funding to EU Member States and European banks. The Irish sovereign ratings have a direct impact on the Groups rating, which is a key factor in attracting and retaining
deposits. Any future downgrade could threaten the Groups liquidity and funding including its deposit base and might also impede future access to wholesale funding markets. Contagion risks could disrupt the markets and adversely affect the Groups financial condition Contagion risk in the markets in which the Group operates and dislocations caused by the interdependency of financial market participants is an on-going material risk to
the Groups financial condition. Any reductions in the perceived creditworthiness of one or more corporate borrowers or financial institutions could lead to market-wide liquidity problems, losses and defaults, which could adversely affect the
Groups results, financial condition and future prospects. Another source of potential contagion risk relates to the Euro. The potential withdrawal of Greece from the Eurozone would have a significant adverse effect on the financial stability
of Europe, and with it that of the Irish financial system and Irish banks. This scenario could lead to a loss of customers deposits, as well as creating some immediate operational and business hurdles for the Group. Constraints on liquidity and market reaction to factors affecting Ireland and the Irish economy have created an exceptionally challenging environment for the
management of the Groups liquidity AIB has been operating in an exceptionally challenging environment for the last four years. Wholesale market conditions
have restricted the Groups funding access to short duration, mainly secured funding. However, there has been recent improvement in market sentiment towards Irish issuers and AIB plans to re-engage in a balanced and measured manner to ensure
viable funding levels whilst building confidence with external investors. The continuing availability of customer deposits to fund the Groups loan portfolio
is subject to factors outside the Groups control, such as the loss of confidence of depositors in the Irish economy, the Irish financial services industry or the Group. Any loss of confidence in the Group, or in banking businesses generally,
could lead to further losses of deposits over a short period of time. To meet its funding requirements, the Group has accessed a range of central bank liquidity
facilities, including certain additional liquidity schemes introduced by central banks for market participants during periods of dislocation in the funding markets. This has included a switch from short term ECB drawings into two 3-year Longer-Term
Refinancing Operations (LTROs) in December 2011 and March 2012. In accessing central bank and other secured lending facilities, the Group has relied significantly on its Qualifying Liquid Assets. On-going deleveraging and an increase in customer deposits have reduced the Groups reliance on ECB funding and central bank liquidity facilities with the Group now
preparing for the expiry of the Eligible Liabilities Guarantee (ELG) Scheme. However, in the unlikely event that AIB exhausts its stock of available collateral, it would be necessary to seek alternative sources of funding, including
continued support by the Irish Government. The Financial Measures Programme, which requires each domestic Irish bank to meet liquidity requirements including
targets set for Basel III ratios, Net Stable Funding Ratio (NSFR) and Liquidity Coverage Ratio (LCR) require continued deleveraging measures such as the run off and disposal of non-core assets. The Groups markets, particularly for retail deposits, are at risk from more intense competition The Group faces continuing competition for retail deposits across all of its markets. In the absence of available wholesale funding, the Group needs to retain and grow
its retail deposits to support future growth. Deposit balances have increased across all business segments and AIB UKs withdrawal from the ELG Scheme has had a negligible impact on deposit balances. While the Group believes it is positioned to
compete effectively, there can be no assurance that existing or increased competition will not adversely affect the Group in one or more of the markets in which it operates.








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The Groups business may be adversely affected by a further deterioration in economic and market conditions The deterioration of the Irish and UK economies has significantly adversely affected the Groups financial condition and performance in recent years.
Although, following a very deep recession, economic activity had regained some momentum both in Ireland and internationally, global activity has weakened again. A
renewed downturn in the performance of the Irish economy or other relevant economies could further adversely affect the Groups financial condition and results. This could include further reductions in business activity, lower demand for the
Groups products and services, reduced availability of credit, increased funding costs, decreased asset values, and additional write-downs and impairment charges. This would have a material adverse effect on the Groups plans for recovery
and deleveraging. The Groups financial performance may also be affected by future recovery rates on assets and the historical assumptions underlying asset recovery rates may no longer be accurate, given the general economic instability. General economic conditions continue to be very challenging for mortgage and other lending to customers and increases the risk of payment default The Group remains heavily exposed to the Irish residential property market (
39.53 billion). The high level of unemployment, coupled with a general reduction in disposable income (including increased taxes and pay reductions) has had an adverse impact on borrowers ability to repay loans which is evidenced by the
increasing arrears on residential property mortgages. Furthermore, since 2011 a number of initiatives and regulations were introduced following the
Inter-Departmental Working Group on Mortgage Arrears, including the publication of the Keane Report, the Code of Conduct on Mortgage Arrears, the Consumer Protection Code 2012 and the 2012 Code of Conduct for Business Lending to Small
and Medium Enterprises and the requirement for Mortgage Arrears Resolution Strategies. Collectively, these have led to a need for more sophisticated mortgage arrears management strategies, in particular, the application of forbearance measures which
were introduced in 2012. The impact of these measures has yet to be seen, but it does increase the risk of potential loan losses which the Group would not otherwise incur as it may lead to a lack of willingness (as opposed to ability) to repay
loans. Furthermore, there is a risk that the reforms of Irish bankruptcy law may result in more customers choosing this as a debt solution. Overall, there is an
increased risk of further impairment to the Groups residential mortgage and commercial property loan portfolios, leading to higher costs, additional write-downs and lower profitability for the Group. The depressed Irish property prices may give rise to increased losses by the Group Since the beginning of 2007, the Irish property market has undergone a material negative correction both in property prices and lending activity. AIBs exposure to
credit risk is exacerbated when the collateral it holds cannot be realised or is liquidated at prices that are not sufficient to recover the full amount of the loan or other exposure due to AIB. This is most likely to occur during periods of
illiquidity and depressed asset valuations, such as those currently being experienced. Any such losses could have a material adverse effect on AIBs future performance and results. In addition, exposure to particularly vulnerable sectors of the
Irish and/or UK economies, in particular property and construction, could result in reduced valuations of the assets over which AIB has taken security and reduced recoverability. Furthermore, an increase in interest rates in AIBs main markets
may lead, amongst other things, to further declines in collateral values, higher repayment costs and reduced recoverability. Together with the aforementioned risks this may adversely affect AIBs earnings or require an increase in the
cumulative impairment charge for AIB. The Group faces market risks, including non-trading interest rate risk Market risk is defined as the risk to AIBs earnings and shareholder value resulting from adverse movements in the level or volatility of market prices of debt
instruments, equities and currencies. The market risk associated with AIBs trading activities is predominantly the result of the facilitation of client business and secondarily, the discretionary positioning activities of AIB in debt
instruments, foreign exchange and equity products. Among the most significant market risks which AIB faces are interest rate, foreign exchange, bond and equity
price risks. Changes in interest rate levels, yield curves and spreads may affect the interest rate margin between lending and borrowing costs, the effect of which may be heightened during periods of liquidity stress, such as those experienced in
recent times. Changes in currency rates, particularly in the euro-sterling and euro-US dollar exchange rates, affect the value of assets and liabilities denominated
in foreign currencies and the reported earnings of AIBs non-Irish subsidiaries and may affect income from foreign exchange dealing. The performance of financial markets may affect bond and equity prices causing changes to the value of
AIBs investment and trading portfolios. While AIB has implemented risk management methodologies to mitigate and control these and other market risks to which
it is exposed, it is difficult, particularly in the current environment, to predict with accuracy changes in economic or market conditions and to anticipate the effects that such changes could have on AIBs financial performance and results of
operations.








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Macro-prudential, regulatory and legal risks to the business model Extensive powers continue to be conferred on the Irish Minister for Finance The
Credit Institutions (Stabilisation) Act 2010 conferred extensive powers on the Irish Minister for Finance to direct the affairs of and restructure credit institutions and reorganise their assets and liabilities. Pursuant to the Act, directors are
required to act in a manner that is aligned to the interests of the State in the performance of their duties, having regard to public interest considerations specified in the Act. The provisions of the Act were to cease to have effect on
31 December 2012 unless otherwise extended. The Act was extended and remains in effect until the end of 2014, unless further extended in due course. The
Group is subject to rigorous and demanding Government supervision and oversight As a result of the recapitalisations of AIB by the Irish Government, AIB is
subject to a set of obligations outlined under a number of Subscription and Placing Agreements impacting on the Groups governance, remuneration, operations and lending activities. These obligations are in addition to certain commitments and
restrictions to the operation of the Groups business under the Credit Institutions (Financial Support ) Scheme 2008 (the CIFS Scheme), the NAMA Programme and the ELG Scheme, all of which may serve to limit the Groups
operations and place significant demands on the reporting systems and resources of the Group. The Group may be subject to the risk of having insufficient capital
to meet increased minimum regulatory requirements The Groups target capital requirements as determined by the Central Bank of Ireland under its Prudential
Capital Assessment Review (PCAR) are currently a core tier 1 ratio of 10.5% in the base scenario and 6% in a stressed scenario (excluding a requirement for an additional protective buffer). As at 31 December 2012, the Group achieved
a core tier 1 ratio of 15.1% which is above the required level. AIB carries out extensive forward-looking stress tests on its capital position on a quarterly basis and, over the course of 2012, these have confirmed that the Group does not require
additional capital within the defined stress level. However, given the levels of uncertainty in the current economic environment, there is a possibility that the economic outturn over the capital planning period may be materially worse than the
stress scenario envisaged and/or that losses on the Groups credit portfolio may be above forecast levels. Were such losses to be significantly greater than currently forecast, there is a risk that the Groups capital position could be
eroded to the extent that it would have insufficient capital to meet its regulatory requirements. The Groups business activities must comply with
increasing levels of regulation introduced as a result of failings in financial markets In 2012, the unprecedented level of new regulations, issued by both by
the Central Bank of Ireland and the EU, continued through a number of new and revised Codes and Directives: 

The first compliance statement under the Corporate Governance Code for Credit Institutions and Insurance firms which was introduced in 2011 was required to be submitted. The Code sets out the minimum requirements an
institution must meet to promote strong and effective governance; 

The revised Code of Conduct for Business Lending to Small and Medium Enterprises offers added protection to those in financial difficulties. This code came into effect on 1 January 2012 with consideration given
until 30 June 2012 for its full implementation; and 

The revised Consumer Protection Code came into effect on 1 January 2012 with consideration given until 30 June 2012 for full compliance where system changes were required. Major change programmes were initiated across the Group to implement these new requirements spanning all business areas, processes and systems and we are operating fully
to these codes now. The Personal Insolvency Act, which was signed into law in December 2012, provides for the introduction of new non-judicial debt settlement and
for amendments to the Bankruptcy Act. It is expected that in quarter 1 of 2013 the newly established Insolvency Service of Ireland will issue relevant guidelines and publications and that in quarter 2 the Insolvency Service will begin to appoint
Personal Insolvency Practitioners (PIPs). A key risk arises from potential changes in customer behaviour and attitude to debt obligations given that the new legislation allows for the agreed settlement of unsecured debt and the
settlement/restructuring of secured debts up to a maximum of 3 million. The inclusion of secured debt in the non-judicial process is unprecedented, and
therefore, it is difficult to gauge its impact. While the Personal Insolvency Arrangement (PIA) requires prior co-operation and engagement by Private Dwelling House (PDH) borrowers under the MARP process, this requirement
does not apply to other secured debtors. These factors could impact on the potential number of customers applying through the insolvency process, with potential negative consequences for the Group in terms of resourcing, impairment provisions and
capital adequacy, with ensuing adverse Government, media and consumer reactions. It is recognised that PIPs, who have yet to be authorised, will play a key role in the effective implementation of the legislation as will the guideline living
standards for applicants. While the Insolvency Service has given indications as to its intended approach in relation to these factors, there remains uncertainty that the controls will be adequate to mitigate the downside risk of changes to customer
behaviour. A number of new legislative proposals are currently being considered by the Oireachtas (the Irish National Parliament) including the Central Bank
(Supervision and Enforcement Bill) 2011 and the Credit Reporting Bill 2012. Together with the high level of existing








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regulations, the challenge of managing regulatory compliance increased substantially in 2012. The changing regulatory standards have posed a concomitant demand on the Group in terms of the
deployment of business and IT resources which are expected to continue in 2013. Delivering this level of change has placed and will continue to place added risk on the organisation, including the challenge to meet tight delivery timelines in the
face of competing priorities and resource demands. The Group is subject to financial services laws, regulations and policies in each location in which it operates. Changes in supervision and regulation, in particular in or applying to Ireland has
and will continue to have a material impact on the Groups business, products and services offered and the value of its assets. Future changes in government
policy, central bank monetary authority policy, EU/Eurozone policies, legislation or regulation or their interpretation relevant to the financial services industry in the markets in which the Group operates may adversely affect its product range,
distribution channels, funding sources, capital requirements and consequently, reported results and financing requirements. Any changes in the regulation of selling practices and solvency, funding and capital requirements could have a significant
adverse effect on the Groups results of operations, financial condition and future prospects. Furthermore, new regulatory obligations regarding functional and operational arrangements within the Group may also have an adverse impact on the
Groups results, financial conditions and prospects. The Groups participation in the NAMA Programme gives rise to certain residual financial risks On 8 April 2009, the Minister for Finance announced that a National Assets Management Agency (NAMA) would be established on a statutory basis
for the purpose of strengthening the Irish financial system as a whole. Legislation was enacted (the National Asset Management Agency Act 2009 (NAMA Act)) in November 2009 which established NAMA with AIB being designated in February 2010
as a participating institution under the NAMA Act. During 2010 and 2011, AIB transferred financial assets to NAMA with a net carrying value of 15.5 billion for which it received as consideration NAMA senior and NAMA subordinated bonds. Section 93 of the NAMA Act (Clawback of overpayments) provides that where a participating institution receives an amount to which it was not entitled, that the
participating institution will repay such amount to NAMA. Any payments to NAMA in relation to such Clawback may have an adverse effect on AIB. Section 135 of the NAMA Act and Clause 9.2 of NAMAs Acquisition Terms and
Conditions directs AIB to provide a series of indemnities to NAMA relating to the transferred assets. Any payment by AIB to NAMA in respect of the indemnities may have an adverse effect on AIB. Furthermore, Section 225 of the NAMA Act provides, that on the dissolution or restructuring of NAMA, that the Minister for Finance may require that a report and
accounts be prepared. In the event that NAMA shows that an aggregate loss has been incurred during the period since its establishment, the Irish Minister for Finance may impose a surcharge on AIB, as a participating institution (under additional
legislation which would be enacted). The surcharge is to be apportioned to each participating institution on the basis of the book value of the assets acquired from that participating institution and is not to exceed the amount of the underlying
loss, if any, incurred by NAMA. Any surcharge due to be paid by a participating institution in accordance with the Act may not exceed 100 per cent. of the corporation tax, if any, due and payable by that participating institution for the
accounting period(s). No surcharge will become payable until either (a) 10 years after the passing of the NAMA Act; or (b) NAMA is dissolved or restructured, or there is a material alteration of NAMAs functions, whichever is last to
occur. In addition, credit exposure to NAMA arises from the senior and subordinated NAMA bonds acquired by AIB in consideration for the transfer of assets to NAMA. Any of these events may serve to limit AIBs operations and could have a material adverse effect on AIBs results, financial condition and future
prospects. The Group may be adversely affected by further austerity and budget measures introduced by the Irish Government The current and future budgetary and taxation policy of Ireland and other measures adopted by Ireland to meet its obligations to the EU, the ECB or the IMF may have an
adverse impact on borrowers ability to repay their loans and, as a result, the Groups business. The value of certain financial instruments recorded
at fair value is determined using financial models incorporating assumptions, judgements, and estimates that may change over time, or may ultimately not turn out to be accurate, and the value realised by the Group for these assets may be materially
different from their current, or estimated, fair value Under IFRS, the Group recognises at fair value: (i) derivative financial instruments;
(ii) financial instruments at fair value through profit or loss; (iii) certain hedged financial assets and financial liabilities; and (iv) financial assets classified as available for sale (AFS). The best evidence of fair
value is quoted prices in an active market. Generally, to establish the fair value of these instruments, the Group relies on quoted market prices or, where the market for a financial instrument is not sufficiently active, internal valuation models
that use








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observable market data. Where quoted prices on active markets are not available, the Group uses valuation techniques which require it to make assumptions, judgements and estimates to establish
fair value. In common with other financial institutions, these internal valuation models are complex, and the assumptions, judgements and estimates the Group is required to make often relate to matters that are inherently uncertain, such as expected
cash flows, the ability of borrowers to service debt, appropriate credit spreads, residential and commercial property price appreciation and depreciation, and relative levels of defaults. Such assumptions, judgements and estimates need to be updated
to reflect changing facts, trends and market conditions. The resulting change in the fair values of the financial instruments has had, and could continue to have, an adverse effect on the Groups results and financial condition. The financial markets have experienced stressed conditions, where steep falls in perceived or actual asset values have been accompanied by a severe reduction in market
liquidity. These stress conditions resulted in the Group recording significant fair value write-downs in the preceding four years. Valuations in future periods, reflecting then-prevailing market conditions, may result in significant changes in the
fair values of the Groups exposures, even in respect of exposures such as credit market exposures, for which it has previously recorded fair value write-downs. In addition, the value ultimately realised by the Group may be materially different
from the current or estimated fair value. Any of these factors could require the Group to recognise further fair value write-downs or recognise impairment charges, any of which may adversely affect its results, financial condition and future
prospects. The recoverability of the Groups deferred tax assets depend substantially on the generation of future profits over an extended number of years.
Changes in tax legislation, regulatory requirements or accounting standards could adversely affect the basis of recognition. The Groups business
performance may not reach the level assumed in the projections supporting the carrying value of the deferred tax assets. Lower than anticipated profitability within Ireland would lengthen the anticipated period over which the Groups Irish tax
losses would be used. The value of the deferred tax assets relating to unused tax losses constitutes substantially all of the deferred tax assets recognised in the Groups statement of financial position. A significant reduction in anticipated
profit, or changes in tax legislation, regulatory requirements, accounting standards or relevant practices, could adversely affect the basis for recognition of the value of these losses, which would adversely affect the Groups results and
financial condition, including capital and future prospects. New capital adequacy rules, consistent with Basel III principles, are proposed within the EU draft
Capital Requirements Regulation (part of the Capital Requirements Directive IV package). Assuming implementation in substantially unchanged form, the new rules will, inter alia, require the Group to deduct from its common equity capital, the value
of most of the Groups deferred tax assets, including all deferred tax assets arising from unused tax losses. The deduction is likely to be phased in evenly over 5 years (20% per annum) starting on 1 January 2014. Risks relating to our business operations, governance and internal control systems The Group is subject to inherent credit risks in respect of customers and counterparties which could adversely affect the Groups results, financial condition and
future prospects Risks arising from changes in credit quality and the recoverability of loans and other amounts due from customers and counterparties are
inherent in a wide range of the Groups businesses. In addition to the credit exposures arising from loans to individuals, SMEs and corporates, the Group also has exposure to credit risk arising from loans to financial institutions, its trading
portfolio, AFS portfolio and derivatives and from off-balance sheet guarantees and commitments. The Group has been exposed to increased counterparty risk as a result of the risk of financial institution failures during the global economic crisis.
The Group is also exposed to credit risks relating to sovereign issuers. Concerns in respect of Ireland and other sovereign issuers, including other European Union Member States, have adversely affected and could continue to adversely affect the
financial performance of the Group. The Group faces heightened operational risks The Group faces a heightened operational risk profile given the current economic environment and in the context of taking forward the significant organisational
restructuring programme including the integration of EBS, Anglo Irish Bank Corporation Limited (now Irish Bank Resolution Corporation IBRC) deposits and the impact of an ongoing organisational voluntary severance programme. One of its key operational risks is people risk. The Groups efforts to restore and sustain the stability of its business on a long-term basis depend, in part, on
the availability of skilled management and the continued service of key members of staff both at its head office and at each of its business units. Failure by the Group to staff its day-to-day operations appropriately, or the loss of one or more key
Senior Executives, with a failure to replace them in a satisfactory and timely manner, could have an adverse effect on the Groups results, financial condition and prospects.








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Delivering this level of change has placed and will continue to place added risk on the organisation, including the
challenge to meet tight delivery timelines in the face of competing priorities and resource demands. Negative public or industry opinion can result from the actual, or perceived, manner in which the Group conducts its business activities or from the
restructuring of the Group. Negative public or industry opinion may adversely affect the Groups ability to keep and attract customers and, in particular, corporate and retail depositors, the loss of which would, in both cases, adversely affect
the Groups results, financial condition and prospects. Any weakness in the Groups risk controls or loss mitigation actions in respect of operational risk could have a material adverse effect on the Groups results, financial
condition and operations. The restructuring of the Group entails risks AIBs strategy is to establish a new domestic core bank with a restructured balance sheet. This will be achieved through the progressive disposal and winding down of
non-core assets through its deleveraging plan with a target loan to deposit ratio of 122.5 per cent by December 2013. In May 2011, the Group dismantled its
former divisional structure which was replaced with a one bank model comprising AIB customer facing units: Personal & Business Banking; Corporate, Institutional and Commercial Banking; and AIB UK, which continues to be managed
as a separate unit. Following a further strategy review announced in July 2012, AIB has re-affirmed its commitment to a one bank strategy. However, this strategy will be implemented via a further revised and simpler organisational
structure. AIB will, in future, operate around three points of focus  the domestic core bank, AIB UK comprising in Great Britain: Allied Irish Bank (GB); and in Northern Ireland First Trust Bank (FTB), and the newly
created Financial Solutions Group (FSG). This revised structure is currently being implemented. In addition, AIB has continued the integration of EBS
Limited and the former Anglo Irish Bank retail deposit book which were both acquired during 2011 (see notes 22 and 23 to the consolidated financial statements). AIBs business and organisational restructuring represents a significant change
programme and brings with it a number of key execution risks, including impacting on: labour relations as a consequence of the introduction and implementation of a severance programme; employees as the organisation transitions to a significantly
smaller and less diversified institution; and the implementation of a cost reduction and business rationalisation programme currently being developed to re-align its cost base and become a more focused and streamlined organisation. This may result
in AIB incurring significant additional costs, including incremental redundancy costs. Any such programme will take time to implement and may negatively impact on the profitability of AIB. Given the possibility of the imposition of conditions by the European Commission, in connection with the approval of AIBs European Union restructuring plan, there
can be no assurance that AIB will be able to implement its cost reduction and business rationalisation programme in the way currently envisaged, which could adversely affect AIBs results, operations, financial condition and future prospects. The Groups risk management strategies and techniques may be unsuccessful AIB is exposed to a number of material risks as categorised and outlined above. In order to minimise these risks, AIB has implemented comprehensive risk management
strategies. Although AIB invests substantial time and effort in its risk management strategies and techniques, there is a risk that these may fail to fully mitigate the risks in some circumstances, particularly if confronted with risks that were not
identified or anticipated. Some of AIBs measures for managing risk are based upon observation of historical market behaviour. Where this is so, AIB applies
statistical techniques to these observations to quantify its risk exposures. If circumstances arise that AIB in developing its models did not identify or anticipate, the losses could be greater than expected. Furthermore, AIBs quantifications of risk do not take all risks into account. If AIBs measures to assess and mitigate risk prove insufficient, AIB may
experience material unexpected losses. There is always a risk of litigation arising from the Groups activities AIB operates in a legal and regulatory environment that exposes it to potentially significant litigation and regulatory risks. Disputes and legal proceedings in which AIB
may be involved are subject to many uncertainties, and their outcomes are often difficult to predict, particularly in the earlier stages of a case or investigation. Adverse regulatory action or adverse judgments in litigation could result in
restrictions or limitations on AIBs operations or result in a material adverse effect on AIBs reputation or results of operations.








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Introduction The Groups
risk profile remains at an elevated level, driven in tandem by both the on-going influencing challenges of the external environment and a number of internal factors, both legacy and reflecting the level of organisational transformation currently
underway across the Group. The key risk factors to which the Group is exposed are set out in the previous section. The governance and organisation framework through which the Group manages and seeks, where possible, to mitigate these risks, are
described below. 2.1 Risk management framework The Group assumes a variety of risks in undertaking its business activities. Risk is defined as any event that could damage the core earnings capacity of the Group,
increase earnings or cash-flow volatility, reduce capital, threaten business reputation or viability, and/or breach regulatory or legal obligations. AIB has adopted an Enterprise Risk Management approach to identifying, assessing and managing risks,
the core elements of which are set out in a revised Enterprise Risk Management Framework which was approved by the Board in March 2012. This framework is in turn supported by a number of frameworks covering the management of specific risk categories
(credit risk, operational risk, etc) which were reviewed and approved by the Board over the course of 2012. The core aspects of the Groups risk management approach are described below. 2.2 Risk appetite The Groups risk appetite is
defined as the amount of risk that the Group is prepared to accept in order to deliver on its strategic and business objectives. The Group Risk Appetite Statement (RAS) is a blend of qualitative statements and quantitative limits and
triggers linked to the Groups strategic objectives, and is supported by a number of business segment level risk appetite statements. The Group RAS and Risk
Appetite Framework are Board approved and reviewed at least annually or more often if required in alignment with the annual business and financial budgeting process. The Group RAS has just undergone a review and update process for 2012 (previously
approved in March 2012) during the period November 2012  February 2013 in order to align both with the Groups revised strategy and its new organisational structure. The revised Group RAS will be presented for Board approval in March
2013. All AIB licensed subsidiaries and Business Segments are required to document and align their own risk appetite statements with the Group statement. This work
was initiated and is being facilitated in tandem with the review and update process of the Group RAS and will be complete in quarter 1 2013. While the Board reviews
and approves the Groups Risk Appetite Framework and RAS, the Leadership Team is accountable for ensuring that risks remain within appetite. The Groups risk profile is measured against its risk appetite on a monthly basis and reported to
the Executive Risk Committee (ERC) and Board Risk Committee (BRC). Material breaches of risk appetite, should they arise, are escalated by the Board to the Central Bank of Ireland. 2.3 Risk governance and risk management organisation The Board has ultimate responsibility for the governance of all risk taking activity in the Group. The Group has adopted a three lines of defence framework in
the delineation of accountabilities for risk governance. Under the three lines of defence model, primary responsibility for risk management lies with business line management. The Risk Management function provides the second line of defence,
providing independent oversight and challenge to business line managers. The third line of defence is the Group Internal Audit function which provides independent assurance to the Audit Committee of the Board on the effectiveness of the system of
internal control. Risk governance - Committees While the Board has
ultimate responsibility for the governance of all risk taking activity within AIB, it has delegated a number of risk governance responsibilities to various committees or key officers. The diagram below summarises the current risk committee structure
of the Group. The role of the Board, the Audit Committee, and the BRC is set out in the section on Corporate governance. The Leadership Team comprises the senior executive managers of the Group who manage the strategic business risks of the Group.
It establishes the business strategy and risk appetite within which the risk management function operates. The ERC is the principal executive forum for the review and challenge of enterprise-wide risk management and control. The CRO chairs the ERC.
The principal duties of the ERC are to: 

Continuously review the effectiveness of the Groups risk frameworks and policies; 

Monitor and review the Groups risk profile, risk trends, risk concentrations and policy exceptions; and 

Review all breaches of Board or Leadership Team approved risk appetite and limits. The ERC acts as the ultimate parent
body of a number of other risk and control committees, namely the Group Credit Committee (GCC), the Strategic Credit Forum (SCF) and the New Products Development Committee (NPDC).The SCF is charged with
responsibility for governance of Group credit risk strategy, risk appetite, quality and impairment provision adequacy. The NPDC approves all new products prior to implementation; ensuring that the Groups New Product policy has been fully
adhered to in the design and roll out of new products.








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During 2012, the Group had established a Compliance Committee and an Operational Risk Committee. These committees were
chaired by the CRO, and reported to the ERC and oversaw the on-going management of compliance with regulations and the implementation of new regulations, and operational risk trends and controls across the organisation. In December 2012, these
committees were amalgamated back into the ERC. The Financial Solutions Group Oversight Committee is responsible for overseeing and challenging progress in relation
to the implementation of AIBs Mortgage Arrears Resolution Strategy (MARS) and for co-ordinating the mortgage arrears resolution activities across the Group. This committee evaluates proposals associated with plan implementation
before forwarding them, when and as appropriate, to the Leadership Team and to the Board for approval. The committee is chaired by the Chief Executive Officer (CEO) and the CRO and Chief Credit Officer (CCO) are members of
the committee. The Deleveraging Committee is responsible for the delivery of the Group deleveraging plan and the management of all deleveraging transactions involving non-core assets of the Group. Its principal objective is to oversee the
deleveraging of the loan portfolio in a prudent and efficient manner.  LOGO








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Individuals and functions The role of certain key officers within the Groups risk management framework is described below. Chief Risk Officer The CRO has independent oversight of the
Groups enterprise-wide risk management activities across all risk types. A new CRO was appointed to the Group and commenced in the role in May 2012. The CRO is a member of the Leadership Team and reports independently to the CEO and the
Chairman of the Board Risk Committee. The CROs responsibilities include: 

Providing second line assurance to Senior Management and the Board across all risk types; 

Developing and maintaining the Enterprise Risk Management framework; 

Providing independent reporting to the Board on all risk issues, including the risk appetite and risk profile of the Group; and 

Providing independent assurance to the CEO and Board that material risks are identified across all risk types and managed by line management and that the Group is in compliance with enterprise risk policies, processes
and limits. Head of Internal Audit Group Internal
Audit (GIA) is an independent evaluation and appraisal function reporting to the Board through the Audit Committee. A new Head of Internal Audit commenced in the role in May 2012. GIA acts as the third line of defence in the Groups
risk governance organisation and provides assurance to the Audit Committee on the adequacy, effectiveness and sustainability of the governance, risk management and control framework throughout the Group, including the activities carried out by other
control functions. The results of GIA audits are reported quarterly to the Audit Committee, which monitors both the resolution of audit issues and progress in the delivery of the audit plan. 2.4 Risk identification and assessment process Risk
is identified and assessed throughout the Group through a combination of top-down and bottom-up risk assessment processes. Top-down risk assessment processes seek to identify the material risks facing the Group, both in the context of the
Groups agreed risk appetite and in the identification of new and emerging threats. Top-down risk assessments are carried out on a regular basis and are reviewed by the ERC and the BRC. These assessments form critical inputs into the
Groups Internal Capital Adequacy Assessment Process (ICAAP). Bottom-up risk assessment processes are more granular, focusing on risk events that have been identified through specific qualitative and quantitative measurement tools.
More information on the key bottom-up risk assessment techniques across material risk types can be found in the individual risk sections below. 2.5 Stress and scenario testing The Groups risk identification and assessment framework described above is supported by a framework of stress testing,
scenario and sensitivity analysis and reverse stress testing that seeks to ensure that risk assessment is dynamic and forward looking and considers not only existing risks but also potential and emerging threats. The Group undertakes a regular
programme of stress testing across all its material risks to meet internal and regulatory requirements. In addition, ad-hoc stress tests are undertaken, as required, to inform strategic decision making. 2.6 Future developments The Group recognises the need
to make further enhancements to its risk management arrangements given the heightened external risk environment, the increasing scope and intensity of the regulatory environment and the further operational transformation upon which the Group
embarked in 2012. These further enhancements include: 

Completing the implementation and embedding of a revised risk management framework and policy architecture; 

On-going review of the nature and scale of the Groups risk governance arrangements as the Group pursues its deleveraging and strategic transformation agendas; and 

On-going improvements in the risk management and internal control environment in line with internal and external stakeholder requirements.








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This section provides details of the Groups exposure to, and risk management of the following individual risk types
which have been identified through the Groups risk assessment process: 3.1 Credit risk; 3.2 Liquidity risk; 3.3 Market risk; 3.4 Structural foreign exchange risk; 3.5
Operational risk; 3.6 Regulatory compliance risk; 3.7 Pension risk; and 3.8 Parent company risk
information








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3.1 Credit risk Credit risk is the risk that the Group will incur losses as a result of a customer or counterparty being unable or unwilling to meet a commitment that it has entered
into. Credit exposure arises in relation to lending activities to customers and banks, including off-balance sheet guarantees and commitments, the trading portfolio, financial investments available for sale, and derivatives. Concentrations in particular portfolio sectors, such as property and construction can impact the overall level of credit risk. The credit risk disclosures in this section are aligned with the Central Bank of Ireland (CBI) guidelines issued in December 2011. Percentages presented throughout the tables in this section are calculated on the absolute underlying figures and so may differ from the percentage variances calculated
on rounded numbers presented. Credit exposure Maximum exposure to credit risk from balance sheet and off-balance sheet financial instruments is presented before taking account of any collateral held or other credit
enhancements (unless such enhancements meet accounting offsetting requirements). For financial assets recognised on the statement of financial position, the maximum exposure to credit risk equals their carrying amount, and for financial guarantees
and similar contracts granted, it is the maximum amount that the Group would have to pay if the guarantees were called upon. For loan commitments and other credit-related commitments that are irrevocable over the life of the respective facilities,
it is generally the full amount of the committed facilities. The following table sets out the maximum exposure to credit risk that arises within the Group and
distinguishes between those assets that are carried in the statement of financial position at amortised cost and those carried at fair value:  2012




2011Maximum exposure to credit risk*




Amortisedcost 
m
(1)




Fairvalue
 m
(2)




Total 
 m





Amortisedcost  m
(1)




Fairvalue  m
(2)




Total 
 mBalances at central banks(3)




3,481











3,481





2,344











2,344Items in course of collection




192











192





202











202Disposal groups and non-current assets held for sale(4)




353
(5)










353





1,191
(5)










1,191Trading portfolio financial assets(6)










22





22











54





54Derivative financial instruments










2,835





2,835











3,046





3,046Loans and receivables to banks




2,914











2,914





5,718











5,718Loans and receivables to customers




72,972











72,972





82,540











82,540NAMA senior bonds




17,387











17,387





19,856











19,856Financial investments available for sale(7)










16,201





16,201











15,145





15,145Included elsewhere:Sale of securities awaiting settlement




5











5





2











2Trade receivables




63











63





150











150Accrued interest




454











454





582











58297,821





19,058





116,879





112,585





18,245





130,830Financial guarantees




1,561











1,561





2,009











2,009Loan commitments and other creditrelated commitments




8,974











8,974





9,862











9,86210,535











10,535





11,871











11,871Total




108,356





19,058





127,414





124,456





18,245





142,701 (1)All amortised cost items are loans and
receivables per IAS 39 definitions. (2)All items measured at fair value
except financial investments available for sale and cash flow hedging derivatives are classified as fair value through profit or loss. (3)Included within cash and balances at central banks of  4,047 million (2011:  2,934 million). (4)Certain non-financial assets and equity investments within disposal groups and
non-current assets held for sale of  209 million (2011:  231 million) are not included above (note 25). (5)Comprises loans and receivables to banks and customers measured at amortised
cost. (6)Excluding equity shares of  2 million (2011:  2 million). (7)Excluding equity shares of  143 million (2011:  244
million).








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3.1 Credit risk  Credit exposure Credit risk mitigants* The perceived strength of a borrowers repayment
capacity is the primary factor in granting a loan; however, AIB uses various approaches to help mitigate risks relating to individual credits including: transaction structure, collateral and guarantees. Collateral or guarantees are usually required
as a secondary source of repayment in the event of the borrowers default. The main types of collateral for loans and receivables to customers are described below under the section on Collateral. Very occasionally, credit derivatives are purchased to hedge credit risk. Current levels are minimal and their use is subject to the normal credit approval process. The Group enters into master netting agreements for derivatives with certain counterparties, to ensure that in the event of default, all amounts outstanding with those
counterparties will be settled on a net basis. In the case of large exposures, it is sometimes necessary to reduce initial deal size through appropriate sell-down
and syndication strategies. There are established guidelines in place within the Group relating to the execution of such strategies. The Group also has in place an
interbank exposure policy which establishes the maximum exposure for each counterparty bank depending on credit grade. Each bank is assessed for the appropriate exposure limit within the policy. Risk generating business units in each market segment
are required to have an approved bank or country limit prior to granting any credit facility, or approving any obligation or commitment which has the potential to create interbank or country exposure. Collateral* The main types of collateral for loans and receivables to
customers are as follows: Mortgage portfolios*:The Group takes collateral in support of lending transactions for the purchase of residential property.
Collateral valuations are required at the time of origination of each residential mortgage. The fair value at 31 December 2012 as outlined on page 71 is based on the property values at origination or date of latest valuation and applying the
CSO (Ireland) and Nationwide (UK) indices to these values to take account of price movements in the interim. Please also refer to additional information in relation
to loan-to-value (LTV) and Days Past Due profiles for residential mortgages in 3.1 Credit Risk  Credit profile of the loan portfolio. Non-mortgage portfolios*:For non-mortgage lending, collateral is taken where available, and will typically include a charge over the business assets such as
stock and debtors. In some cases, a charge over property collateral or a personal guarantee supported by a lien over personal assets may also be taken. The value of collateral is assessed at origination of the loan or in the case of criticised
loans, when testing for impairment. However, as the Group does not capture collateral values on its loan systems, it is not possible to quantify the fair value of collateral for non impaired loans on an on-going basis at portfolio level. It should
be noted that when testing a loan for impairment, the present value of future cash flows, including the value of collateral held, and the likely time taken to realise any security is estimated. A provision is raised for the difference between this
present value and the carrying value of the loan. Therefore, for non-mortgage impaired loans, the net exposure after provision would be indicative of the fair value. Set out below is the fair value of collateral for financial assets (excluding non-mortgage portfolios) detailed in the maximum exposure to credit risk table on the
previous page. Derivatives* Derivative financial instruments are
shown on the statement of financial position at their fair value. Those with a positive fair value are reported as assets which at 31 December 2012 amounted to
 2,835 million (2011:  3,046 million) and those with a negative fair value are reported as liabilities
which at 31 December 2012 amounted to  3,256 million (2011:  3,843 million). The Group has a number of ISDA Master Agreements (netting agreements) in place which may allow it to net the termination values of derivative contracts upon the
occurrence of an event of default with respect to its counterparties. The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets and liabilities by  1,539 million (2011:  1,369 million). The Group has Credit Support Annexes (CSAs) in place which
provide collateral for derivative contracts. At 31 December 2012,  1,260 million (2011:  1,904 million) of CSAs are included within financial assets
and  361 million (2011:  612 million) of CSAs are included within financial liabilities. Additionally, the Group has agreements in place which may allow
it to net the termination values of cross currency swaps upon the occurrence of an event of default.








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3.1 Credit riskCredit exposure Collateral*(continued) Loans and receivables to
banks* Interbank placings, including central banks, are largely carried out on an unsecured basis apart from reverse repurchase agreements. At
31 December 2012, the Group has received collateral with a fair value of  61 million on a loan with a carrying value of  61 million (2011:  55 million and  59 million respectively). Loans and receivable to customers* The following table shows the fair
value of collateral held for residential mortgages at 31 December 2012 and 31 December 2011:  2012




2011Neither past
due norimpaired


Past due
but notimpaired


Impaired


Total




Neither past
due norimpaired


Past duebut notimpaired


Impaired


Total m


 m


 m


 m




 m


 m


 m


 mFully collateralised(1)Loan-to-value ratio:Less than 50%


4,282



204



316



4,802





4,919



196



300



5,41550% - 70%


4,083



218



419



4,720





4,692



231



393



5,31671% - 80%


2,451



133



320



2,904





2,655



136



262



3,05381% - 90%


2,771



156



369



3,296





2,838



154



331



3,32391% - 100%


2,682



160



505



3,347





3,065



180



426



3,67116,269



871



1,929



19,069





18,169



897



1,712



20,778Partially collateralisedCollateral value relating to loans over 100% loan-to-value


12,011



866



4,254



17,131





14,037



1,012



3,199



18,248Total collateral value


28,280



1,737



6,183



36,200





32,206



1,909



4,911



39,026Gross residential mortgages


32,318



2,073



8,130



42,521





36,466
(2)


2,269



6,243
(3)


44,978(4)Statement of financial position specific provisions










(2,699
)


(2,699)













(1,741
)


(1,741)Statement of financial position IBNR provisions














(507)

















(895)Net residential mortgages










5,431



39,315













4,502



42,342 (1)The fair value of collateral held for residential
mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at each year end. (2)Excludes deferred costs of  70 million and purchased residential mortgage loan pools of  78 million in 2011. In 2012, the figures are inclusive of deferred costs and the purchased residential mortgage loan pools are included within the Financial sector. (3)Excludes purchased residential mortgage loan pools of  100 million in 2011. In 2012, these loans are shown in Financial sector. (4)Excludes deferred costs of  70 million and purchased residential mortgage loan pools of  178 million in 2011. In 2012, the figures are inclusive of deferred costs and the
purchased residential mortgage loan pools are included within the Financial sector. NAMA senior bonds* NAMA senior bonds, which at 31 December 2012 have a carrying value of 
17,387 million (2011:  19,856 million), are guaranteed by the Irish Government as to principal and interest. Financial investments available for sale* At 31 December 2012,
government guaranteed senior bank debt amounting to  0.8 billion (2011:  0.9 billion) was held within the
available for sale portfolio.








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3.1 Credit riskCredit risk management Credit risk on lending activities to customers and banks* AIB Group lends to
personal, retail customers, commercial entities and banks. Credit risk arises on the drawn amount of loans and advances, but also as a result of loan commitments, such as undrawn loans and overdrafts, and other credit related commitments such as
guarantees, performance bonds and letters of credit. These credit related commitments are subject to the same credit assessment and management as loans and advances. Credit risk also arises in the Groups available for sale portfolio where counterparties are banks, sovereigns or structured debt, e.g. residential mortgage backed
securities. These credit risks are identified and managed in line with the credit management framework of the Group. Credit risk on derivatives* The credit risk on derivative contracts is the risk that the Groups counterparty in the contract defaults prior to maturity at a time when AIB has a claim on the
counterparty under the contract. AIB would then have to replace the contract at the current market rate, which may result in a loss. Derivatives are used by AIB to meet customer needs, to reduce interest rate risk, currency risk and in some cases,
credit risk, and also for proprietary trading purposes. Risks associated with derivatives are managed from a credit, market and operational perspective. The credit exposure is treated in the same way as other types of credit exposure and is included
in customer limits. The total credit exposure consists partly of the current replacement cost and partly of the potential future exposure. The potential future exposure is an estimation, which reflects possible changes in market values during the
remaining life of the individual contract. The Group uses a simulation tool to estimate possible changes in future market values and computes the credit exposure to a high level of statistical significance. Country risk* Credit risk is also influenced by country risk, where
country risk is defined as the risk that circumstances arise in which customers and other counterparties within a given country may be unable/unwilling to fulfil or are precluded from fulfilling their obligations to the Group due to economic or
political circumstances. Country risk is managed by setting appropriate maximum risk limits to reflect each countrys overall creditworthiness. These limits
are informed by independent credit information from international sources and supported by periodic visits to relevant countries. Risks and limits are monitored on an ongoing basis. Settlement risk* Settlement risk arises in any situation where a
payment in cash, securities or equities is made in the expectation of a corresponding receipt in cash, securities or equities. The settlement risk on many transactions, particularly those involving securities and equities, is substantially mitigated
when effected via assured payment systems, or on a delivery-versus-payment basis. Each counterparty is assessed in the credit process and clearing agents, correspondent banks and custodians are selected with a view to minimising settlement risk. The
most significant portion of the Groups settlement risk exposure arises from foreign exchange transactions. Daily settlement limits are established for each counterparty to cover the aggregate of all settlement risk arising from foreign
exchange transactions on a single day. Credit concentration risk* Credit concentration risk arises where any single exposure or group of exposures, based on common risk characteristics, has the potential to produce losses large enough
relative to the Groups capital, total assets, earnings or overall risk level to threaten its health or ability to maintain its core operations. Risk
identification and assessment * All customer requests for credit are subject to a credit assessment process. AIB operates credit approval criteria which: 

Include a clear indication of the Groups target market(s), in line with Group and Business Unit Risk Appetite Statements; 

Require a thorough understanding and assessment of the borrower or counterparty, as well as the purpose and structure of the credit, and the source of repayment; and 

Enforce compliance with minimum credit assessment and facility structuring standards. Knowledge of the customer and the
customers financial circumstances or business is the initial factor in assessing credit risk. Depending on the size and nature of the credit, the assessment process is assisted by standard application formats in order to aid the credit
decision maker in making an informed credit decision. The credit approval authority is dependent on the size of the credit application and the grade of the borrower.








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3.1 Credit risk  Credit risk management Risk identification and assessment*(continued) Delegated
authority is a key credit risk management tool. The Board determines the credit authority (i.e. limit) for the Group Credit Committee (GCC) together with the authorities of the Chairman/Chief Executive Officer, the Chief Risk Officer and
the Chief Credit Officer. The GCC approves the market segment delegated credit authorities and also considers, and where appropriate, approves credit exposures which are in excess of these credit authorities. Delegated authorities below market
segment levels are clearly defined and are explicitly linked to levels of seniority and experience within the Group. With the exception of some individual delegated credit authorities, credit approval is exercised on a dual basis by a business
person and a credit person jointly. Another key tool used to assess credit risk is credit grading or credit scoring for each borrower or transaction, both prior to
approval of the credit exposure and subsequently. The methodology used produces a quantitative estimate of probability of default (PD) for the borrower, typically referred to as a grade. This assessment is carried out at the
individual borrower or transaction level. In the retail consumer and small and medium sized enterprise portfolios, which are characterised by a large number of
customers with small individual exposures, risk assessment is largely informed through statistically-based scoring techniques. The majority of mortgages are assessed centrally with particular reference to affordability which is assisted by scoring
models. Both application scoring for new customers and behavioural scoring for existing customers are used to assess and measure risk as well as to facilitate the management of these portfolios. In the commercial, corporate and interbank portfolios, the grading systems utilise a combination of objective information, essentially financial data (e.g. borrowings;
Earnings before Interest, Tax, Depreciation & Amortisation (EBITDA); interest cover; and balance sheet gearing) and qualitative assessments of non-financial risk factors such as management quality and competitive position within
the sector/industry. The combination of expert lender judgement and statistical methodologies varies according to the size and nature of the portfolio, together with the availability of relevant default experience applicable to the portfolio. Credit concentration risk is identified and assessed at single name counterparty level and at portfolio level. The Board-approved Group Large Exposures Policy
(GLEP) sets the maximum limit by grade for exposures to individual counterparties or group of connected counterparties taking account of features such as security, default risk and term. Portfolio concentrations are identified and
monitored by exposure and grade using internal sector codes. Such measures facilitate the measurement of concentrations by balance sheet size and risk profile
relative to other portfolios within the Group and in turn facilitate appropriate management action and decision making. Risk management and mitigation* To manage credit risk effectively, AIB has developed and implemented processes and information systems to monitor and report on individual credit and credit portfolios
and to highlight issues such as policy exceptions for senior management attention. The key monitoring process is the ongoing review of credits, including annual
case and grade review, with more frequent review when required or as necessitated by the grade. Credit grading and scoring systems facilitate the early
identification and management of any deterioration in loan quality. Changes in the objective information (i.e. financial and business variables as described under risk identification and assessment) are reflected in the credit grade of the borrower
with the resultant grade influencing the management of individual loans. Special attention is paid to lower quality graded loans or Criticised loans. In AIB, criticised loans include Watch, Vulnerable and
Impaired loans which are defined as follows:  Watch:

The credit is exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flows;Vulnerable:

Credit where repayment is in jeopardy from normal cash flows and may be dependent on other sources; andImpaired:

A loan is impaired if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a loss event)
and that loss event (or events) has an impact such that the present value of future cash flows is less than the current carrying value of the financial asset or group of assets and requires an impairment provision to be recognised in the income
statement. The Groups criticised loans are subject to more intense assessment and review, due to the increased risk associated with them.
Given the on-going deterioration in credit quality throughout 2012 in the residential, retail and commercial markets, credit management and credit risk management continued to be the key area of focus. Resourcing, structures, policy and processes
are subjected to continued review in order to ensure that the Group is best placed to manage asset quality and assist borrowers in line with agreed treatment strategies.








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3.1 Credit risk  Credit risk management Risk management and mitigation*(continued) The credit
management process is underpinned by an independent system of credit review. Independent credit review teams assess the application of credit policies, processes and procedures across all areas of the Group. Credit policy and credit management
standards are controlled and set centrally via the Credit Risk function. The more significant credit policies are approved by the Board. Concentration levels are
set by geography, sector and product through the Risk Appetite Statement which is required to be approved by the Board on an annual basis. Forbearance
strategies* The Group considers requests from customers who are experiencing cash flow difficulties on a case by case basis against their current and likely
future financial circumstances and their willingness to resolve these difficulties, taking into account legal and regulatory obligations. The Group has implemented
the standards for the Codes of Conduct in relation to customers in difficulty as set out by the Central Bank of Ireland ensuring these customers are dealt with in a professional and timely manner. A forbearance agreement is entered into where the customer is in financial difficulty to the extent they are unable to repay both the principal and interest in
accordance with the original contract terms. Modifications to the original contract can be of a temporary (e.g. interest only) or permanent (e.g. term extension) nature and a loan is considered to be no longer a forborne loan once the modified terms
and conditions have expired. The Group has developed a Mortgage Arrears Resolution Strategy (MARS) for dealing with mortgage customers in difficulty or
likely to be in difficulty. This builds on and formalises the Groups Mortgage Arrears Resolution Process, under which short term mortgage forbearance solutions (e.g. interest only; part capital and interest repayment; moratorium;
capitalisation of arrears; term extension and deferred interest schemes) have been provided to customers in financial difficulty for the last number of years. The
strategy is built on three key factors: i)   Segmentation  identifying customers in difficulty; ii)  Sustainability  customer assessment; and iii) Suitable Treatment  identifying solutions. The
core objectives are to ensure that arrears solutions are sustainable in the long term and they comply with the spirit and the letter of all regulatory requirements. MARS includes the following new longer-term forbearance solutions which have been
devised to assist existing Republic of Ireland primary residential mortgage customers in difficulty: Split mortgages a split mortgage will be
considered where a customer can afford a mortgage but their income is not sufficient to fully support their current mortgage. The existing mortgage is split into two parts: Loan A being the sustainable element, which is repaid on the basis of
principal and interest; and Loan B being the unsustainable element, which is deferred and becomes repayable at a later date; Negative equity trade down This allows a customer to sell their house and subsequently purchase a new property and transfer the negative equity portion to a new loan secured on the new property. A negative equity trade down mortgage will be considered where a
customer will reduce monthly loan repayments and overall indebtedness by trading down to a property more appropriate to his/her current financial and other circumstances; Voluntary sale for loss A voluntary sale for loss solution will be considered where the loan is deemed to be unsustainable and the customer is agreeable to
sell the property and put an appropriate agreement in place to repay any residual debt. These new advanced forbearance options were introduced during the latter
part of 2012 and will continue to be available to customers who meet certain criteria. Business customers, following assessment of requests made, may also be
provided with forbearance solutions which the Group considers on a case by case basis. Typical types of forbearance being: the placing of the facility on an interest only basis; part capital/ interest basis for a period of time; extension of the
facility term; and in some cases, a debt for equity swap or similar structure. See accounting policy number 15  Impairment of financial assets. All forborne
loans and those loans which have completed their period of forbearance and have returned to original terms and conditions are managed and monitored in line with the relevant credit approval and review authorities framework.








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3.1 Credit risk  Credit risk management Risk monitoring and reporting* Credit managers pro-actively manage the
Groups credit risk exposures at transaction and relationship level. Credit risk, at a portfolio level, is monitored and reported regularly to senior management and the Board Risk Committee. A detailed credit review, including information on
impairment provisions, is prepared quarterly. Single name counterparty concentrations are monitored at transaction level and managed within the Risk Appetite
Statement. Large exposures and portfolio concentrations are reported regularly to senior management and the Board. Provisioning for impairment* The identification of loans for assessment as impaired is facilitated by the Groups rating systems. As described under the risk management and mitigation section,
changes in the variables which drive the borrowers credit grade may result in the borrower being downgraded. This in turn influences the management of individual loans with special attention being paid to lower quality or criticised loans,
i.e. in the Watch, Vulnerable or Impaired categories. The grade of an exposure is one of the key factors used to determine if a case should be assessed for
impairment. Loans are assessed for impairment, either individually or collectively, if they are past due typically for more than ninety days or the borrower exhibits, through lender assessment, an inability to meet his obligations to the Group based
on objective evidence of loss events (i.e. impairment triggers). The types of loss events considered as triggers for an impairment assessment include: General 

national or local economic conditions that correlate with defaults on the assets in the portfolio (e.g. an increase in the unemployment rate in the geographical area of the borrowers, a decrease in residential and/or
commercial property prices in the relevant area, regulatory/government fiscal policy change or adverse changes in industry conditions that affect the borrowers in the group); 

significant financial difficulty of the issuer or obligor; and 

observable data indicating a measurable decrease in estimated cash flows. Mortgages 

90+ days past due; 

a request for a forbearance measure from the borrower. Corporate and SME 

90+ days past due; 

a request for a forbearance measure from the borrower; 

significant financial difficulty of the borrower such as trading losses, loss of business or major customers or change in the borrowers competitive landscape; 

a breach of contract, such as a default or delinquency in interest or principal payments; and 

a breach of covenant, e.g. interest cover, loan-to-value (LTV) level, debt to equity ratio etc. Commercial Real Estate (CRE) 

90+ days past due; 

significant financial difficulty of the borrower or obligor; 

a request for a forbearance measure from the borrower; 

the lack of an active market for the assets concerned; 

a material decrease in the estimated future cash flows or timing of receipt of these; and 

a breach of covenant, e.g. interest cover, LTV level, debt to equity ratio. Where loans are deemed to be impaired, the
Group raises specific impairment provisions in a timely and consistent manner across the credit portfolios. The Group makes use of two types of impairment provision: 

a) Specific; and 

b) Incurred but not reported (IBNR) which represents a collective provision relating to the portfolio of performing loans.








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3.1 Credit risk  Credit risk management Provisioning for impairment*(continued) Specific
impairment provisions Specific impairment provisions arise when the recovery of a specific loan or group of loans is in doubt based on specific impairment
triggers as described previously and assessment that all the expected future cash flows either from the loan itself or from the associated collateral will not be sufficient to repay the loan. The amount of the specific impairment provision will
reflect the financial position of the borrower and the net realisable value of any security held for the loan or group of loans. In practice, the specific impairment provision is the difference between the present value of expected future cash flows
for the impaired loan(s) discounted at the original effective interest rate and the carrying value of the loan(s). When raising specific impairment provisions, AIB divides its impaired portfolio into two categories, namely individually significant
and individually insignificant. Impairment of individually significant exposures Each market segment sets a threshold above which cases are assessed on an individual basis. The individually significant thresholds are as follows: 

PBB, CICB and AIB UK >  500,000/£ 500,000 

EBS >  750,000 For
those loans identified as being impaired and which require assessment on an individual basis, the impairment provision is calculated by discounting the expected future cash flows at the loans original effective interest rate and comparing the
result (the estimated recoverable amount) to the carrying amount of the loan to determine the level of provision required. Specific impairments for larger loans (individually significant) are raised with reference to the individual characteristics
of each credit including an assessment of the cash flows that may arise from foreclosure less costs to sell in respect of obtaining and selling any associated collateral. The time period likely to be required to realise the collateral and receive
the cash flows is taken into account in estimating the future cash flows and discounting these back to present value. As property loans represent a significant
concentration within the Groups loan portfolio (25% at December 2012) property valuation guidelines have been issued by Credit Risk to aid lenders in valuing property assets in the current distressed and illiquid property markets, particularly
in Ireland and the UK. For impaired property and construction exposures, cash flows will generally emanate from the development and/or disposal of the assets which comprise the collateral held by the Group. The Groups preference is to work
with the obligor to progress the realisation of the collateral although in some cases the Group will foreclose its security to protect its position. The methods
used by the Group to assist in reaching appropriate valuations for collateral held include: (a) use of professional valuations; (b) the application of local market knowledge in respect of the property and its location; (c) use of internal guidelines for deriving the valuation of investment property; and (d) use of internally developed residual value methodologies. These are described below:  

Use of professional valuations represents circumstances where external firms are requested to provide formal written valuations in respect of the property. Up to date external professional valuations are sought in
circumstances where it is believed that sufficient transactional evidence is available to support an expert objective view. Historic valuations are also used as benchmarks to compare against current market conditions and assess peak to trough
reductions. Available market indices for relevant assets, i.e. residential property, are also used in valuation assessments; 

The residual value methodology assesses the value in the land or property asset after meeting the incremental costs to complete the development. This approach estimates the cost of developing the asset to determine the
residual value for the Group, including covering the costs to complete and additional funding costs. The key factors considered include: (i)   the

development potential given the location of the asset; (ii)  its

current or likely near term planning status; (iii) levels

of current and likely future demand; (iv) the

relevant costs associated with the completion of the project; and (v)  expected

market prices of completed units. If, following internal considerations which may include consultations with valuers, it is concluded that the optimal value for the Group will be obtained through the development/completion of the project; a residual
value methodology is used. When, in the opinion of AIB, the land is not likely to be developed or it is not commercial to do so, agricultural/green field values may be applied; 

Application of local market knowledge represent circumstances where the local bank management familiar with the property concerned, with local market conditions, and with knowledge of recently completed transactions
provide indications of the likely realisable value and a potential timeline for realisation; and 

In valuing investment property, yields are applied to sustainable rental flows having considered current yields and estimated likely future yields for a more normal market environment for relevant asset classes.








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3.1 Credit risk  Credit risk management Provisioning for impairment*(continued) Applying one or a
combination of the above methodologies has resulted in a wide range of discounts to original collateral valuations, influenced by the nature, status and year of purchase of the asset. All relevant costs likely to be associated with the realisation
of the collateral are taken into account in the cash flow forecasts. The spread of discounts is influenced by the type of collateral, e.g. land, developed land or investment property and also its location. The valuation arrived at is therefore a
function of the nature of the asset, e.g. unserviced land in a rural area will most likely suffer a greater reduction in value if purchased at the height of a property boom than a fully let investment property with strong lessees. The discounts to
original collateral value, having applied our valuation methodologies to reflect current market conditions, can be as high as 95% for land assets where values have been marked down to agricultural/green field site values. When assessing the level of provision required for property loans, apart from the value to be realised from the collateral, other cash flows if available, for example,
recourse to other assets or sponsor support, are also considered. The other key driver in determining the level of provision is the time it takes to receive the
funds from the realisation of collateral. While it depends on the type of collateral and the stage of its development, the period of time to realisation is typically 2 to 7 years but sometimes this time period may be exceeded. These estimates are
frequently reassessed on a case by case basis. In accordance with IAS 39, AIB discounts these cash flows at the assets original effective interest rate to calculate the net present value and compares this with the carrying value of the asset,
the difference being the level of provision required. In assessing the value of collateral for impaired mortgage loans in Ireland, the Group uses a peak to trough
price decline of 55% as a base. In certain circumstances, realisation costs of 10% to 20% are deducted. For individually significant loans, other factors, such as recent transactional evidence or local knowledge are considered, which can result in
higher or lower discounts to collateral valuations. AIB employs a dedicated approach to loan workout and to monitoring and proactively managing impaired loans.
Enterprise Lending Services (ELS) teams in the Republic of Ireland and Specialised Lending Services (SLS) in AIB UK, focus on managing the majority of criticised loans. Ultimately, the loan workout manager will decide on the
method(s) to be used based on his/her expert judgement. The loan workout manager then recommends the required impairment provision to the appropriate credit approval authority. The Group operates a tiered approval framework for impairment provisions which are approved, depending on amount, by various delegated authorities to Area Credit
Committee level. These committees are chaired by the Head of Credit in the market segments where the valuation/impairment is reviewed and challenged for appropriateness and adequacy. Impairments in excess of the market segment authorities are
approved by the GCC and Board (where appropriate). Market segment impairments are ultimately reviewed by the Special GCC as part of the quarterly provision process. The valuation assumptions and approaches used in determining the impairment provisions required are documented and the resulting impairment/impairment losses are
reviewed and challenged as part of the approval process by market segment and Group senior management. Impairment of individually insignificant exposures The calculation of an impairment charge for credits below the significant threshold is undertaken on a collective basis. Loans are grouped together
in homogeneous pools sharing common characteristics, for example in PBB and CICB, exposures are split into the following pools: < 10,000;  10,000 to  30,000; and  30,000 to  500,000, home mortgages up to  500,000; property and construction  30,000 to  500,000; and other commercial
 30,000 to  500,000. Recovery rates for non mortgages are established for
each pool by assessing the Groups loss experience for these pools over the past four years and by examining the amount and timing of cash flows received (typically over four years) from the date the loan was identified as impaired. These
recovery rates are updated at a minimum on a yearly basis. Impairment provisions are then raised on new impaired loans and updated on existing impaired loans, reflecting the Groups updated recovery experience. The individually insignificant
provision process in the UK is similar to that in PBB, with loans grouped into pooled ranges: < £ 10,000; £ 10,000 to £ 25,000; £ 25,000 to £ 500,000 for the following sectors: 

Property and construction; 

Personal; and 

Other commercial.








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3.1 Credit risk  Credit risk management Provisioning for impairment*(continued) In the EBS market
segment, all loans less than  750,000 and > 90 days past due are assessed on a pooled basis. The methodology applies a probability of a loan going to
repossession based on its individual characteristics e.g. time in arrears. Given the lack of repossession experience in the portfolio in recent years, the actual observed instances of loans going from > 90 days past due to less than 90 days past
due is used as a proxy for the aforementioned probability of going to/not going to repossession. The provision applied, given the default to repossession, is arrived at following the application of a peak to trough price decline of 55% plus
additional firesale/disposal costs (range 10% to 20%) and after applying a 3 year discount to the collateral value at the effective interest rate. This methodology is also applied to mortgage loans < 
500k and > 90 days past due in PBB and CICB market segments. For impaired mortgages <  500k and < 90 days past due in PBB and CICB, provisions are applied using the aforementioned peak to trough
house price decline, costs and discount period assumptions. While the approach adopted throughout the Group is similar, depending upon the range/depth of customer
and portfolio information available, the methodologies used in establishing the level of impairment may vary across the market segments, given that the nature of the asset pools differs across market segments. When the prospects of recovering a loan, either partially or in full, do not improve, a point will come when it will be concluded that as there is no realistic prospect
of recovery, the loan (and any related specific provision) will be written off. Where the loan is secured, the write-off will take account of receipt of the net realisable value of security held. Incurred but not reported (IBNR) impairment provisions IBNR
provisions are maintained to cover loans which are impaired at the reporting date and, while not specifically identified, are known from experience to be present in any portfolio of loans but have not yet emerged. Evidence of impairment may arise where there is observable data indicating that there is a measurable decrease in the estimated future cash flows from a group of
financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the group. Such evidence may include: 

National or local economic conditions that correlate with defaults on the assets in the group (e.g. an increase in the unemployment rate in the geographical area of the borrowers; 

a decrease in residential and/or commercial property prices in the relevant area; 

regulatory/ government fiscal policy change; or 

adverse changes in industry conditions that affect the borrowers in the group). IBNR provisions can only be recognised
for incurred losses i.e. losses that are present in the portfolio at the reporting date and are not permitted for losses that are expected to happen as a result of likely future events. IBNR provisions are determined by reference to loss experience
in the portfolios and to the credit environment at the reporting date. IBNR provisions are maintained at levels that are deemed appropriate by management having
considered: credit grading profiles and grading movements; arrears profiles; forbearance activity; historic loan loss rates; recent loss experience; changes in credit management procedures, processes and policies; local and international economic
climates; and near term future losses associated with portfolio sector profiles/industry conditions. The appropriate level of IBNR is calculated based on: (i)

the likely provision rates for these portfolios through the emergence period by reference to the Groups near term provision plans/forecasts which are informed by the
recent specific provision experience; (ii)

an assessment of higher risk portfolios, which include but are not limited to: (a)

the non-impaired forborne mortgages; and (b)

loans graded vulnerable which include loans in advanced arrears; and (c)

loans > 90 days past due but not impaired. The approach used
for the collective evaluation of impairment is to split the performing financial assets into pools on the basis of similar risk characteristics such as, residential mortgages (owner-occupier/buy-to-let), property and construction, SME/other
commercial, other personal and corporate. The assessment of the level of likely incurred loss in these higher risk portfolios is informed, where appropriate, by independent credit reviews of these portfolios. The emergence period is key to determining the level of collective impairment provisions. Emergence periods for each market segment are determined by taking into account
current credit management practices; historical evidence of assets moving from good to bad as a result of a loss event, and include case sampling. The range of emergence periods applied by AIB is three to twelve
months with the majority of the portfolio having a six month emergence period applied.








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3.1 Credit risk  Credit profile of the loan portfolio AIB Groups customer loan portfolio comprises loans (including overdrafts), instalment credit and finance lease receivables. The overdraft provides demand credit
facility combined with a current account. Borrowings occur when the customers drawings take the current account into debit. The balance may therefore fluctuate with the requirements of the customer. Although overdrafts are contractually
repayable on demand (unless a fixed term has been agreed), provided the account is deemed to be satisfactory, full repayment is not generally demanded without notice. The tables below show for the years ended 31 December 2012 and 31 December 2011 loans and receivables to customers by industry sector including loans and
receivables within disposal groups and non-current assets held for sale: (i)   Total

loans and receivables to customers; (ii)  Impaired

loans and receivables to customers; and (iii) Provisions

for impairment on loans and receivables to customers.  2012




2011Loans and receivables to customers*

Loans andreceivablestocustomers


Disposalgroupsand non-currentassetsheldfor sale


Total


Total




Loans andreceivablestocustomers


Disposalgroupsand non-currentassetsheldfor sale


Total


Total m


 m


 m


%




 m


 m


 m


%Agriculture


1,781







1,781



2.0





1,862



6



1,868



1.9Energy


375



88



463



0.5





665



231



896



0.9Manufacturing


1,625







1,625



1.8





2,037



34



2,071



2.1Property and construction


22,251







22,251



24.8





23,774



716



24,490



24.8Distribution


7,790







7,790



8.7





8,476



73



8,549



8.7Transport


801



373



1,174



1.3





1,287



42



1,329



1.3Financial


785







785



0.9





1,362



6



1,368



1.4Other services


6,313



14



6,327



7.0





7,010



15



7,025



7.1PersonalResidential mortgages


42,521







42,521



47.3





45,154



72



45,226



45.8Other


4,698







4,698



5.2





5,321







5,321



5.4Lease financing


457







457



0.5





544







544



0.6Gross loans and receivables


89,397



475



89,872



100.0





97,492



1,195



98,687



100.0Unearned income


(108
)






(108)









(123
)


(2
)


(125)Deferred costs


89







89









103







103Provisions for impairment


(16,406
)


(122
)


(16,528)









(14,932
)


(9
)


(14,941)Total statement of financial position


72,972



353



73,325









82,540



1,184



83,724Gross loans and receivables analysed as to:Neither past due nor impaired


56,179



238



56,417









67,894



1,162



69,056Past due but not impaired


4,039







4,039









4,795



3



4,798Impaired - provisions held


29,179



237



29,416









24,803



30



24,83389,397



475



89,872









97,492



1,195



98,687








| |  |                                                             |  |   
| |  | ----------------------------------------------------------- |  | --
| |  | *Forms an integral part of the audited financial statements |  |   
| |  |                                                             |  | 79



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##### Table of Contents

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|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio(continued)  2012




2011Impaired loans and receivables to customers*

Loans andreceivablestocustomers


Disposalgroupsand non-currentassets heldfor sale


Total




Loans andreceivablestocustomers


Disposalgroupsand non-currentassets heldfor sale


Total m


 m


 m




 m


 m


 mAgriculture


334







334





310







310Energy


36







36





38







38Manufacturing


472







472





436







436Property and construction


13,804







13,804





11,899







11,899Distribution


3,442







3,442





3,058







3,058Transport


120



237



357





127







127Financial


245







245





191







191Other services


1,026







1,026





951







951PersonalResidential mortgages


8,130







8,130





6,313



30



6,343Other


1,431







1,431





1,335







1,335Lease financing


139







139





145







145Total


29,179



237



29,416





24,803



30



24,8332012




2011Provisions for impairment on loans and receivables tocustomers*

Loans andreceivablestocustomers


Disposalgroupsand non-currentassets heldfor sale


Total




Loans andreceivablestocustomers


Disposalgroupsand non-currentassets heldfor sale


Total m


 m


 m




 m


 m


 mAgriculture


233







233





199







199Energy


29







29





28







28Manufacturing


300







300





251







251Property and construction


7,681







7,681





6,469







6,469Distribution


2,013







2,013





1,698







1,698Transport


93



122



215





90







90Financial


168







168





142







142Other services


650







650





567







567PersonalResidential mortgages


2,699







2,699





1,785



3



1,788Other


1,064







1,064





904







904Lease financing


133







133





121







121Specific


15,063



122



15,185





12,254



3



12,257IBNR


1,343







1,343





2,678



6



2,684Total


16,406



122



16,528





14,932



9



14,941 The definitions below relate to the loans and receivables to customers profiled on the tables on pages 81 and 82. (1)Satisfactory: credit which is not included in any of the criticised catergories
of Watch, Vulnerable and Impaired loans. Criticised loans include: (2)Watch: credit exhibiting weakness but with the expectation that existing debt can
be fully repaid from normal cashflow. (3)Vulnerable: credit where repayment is
in jeopardy from normal cashflow and may be dependent on other sources. (4)Impaired: a loan is impaired if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the assets (a loss event) and that loss event (or events) has an impact such that the present value of future cashflows is less than the gross carrying value of
the financial asset or group of assets i.e. requiring a provision to be raised through the income statement.








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|-- |  | -----------------------------------------------------------
|   |  | *Forms an integral part of the audited financial statements
|80 |  |                                                            



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| |  | Risk management |  | LOGO






3.1 Credit risk  Credit profile of the loan portfolio The following table analyses loans and receivables to customers by market segment showing asset quality and impairment provisions for the years ended 31 December
2012 and 31 December 2011:  CoreGross loans and receivables to customers*

PBB




CICB




AIB UK




EBS




Total
Core m




 m




 m




 m




 mResidential mortgagesOwner occupier


18,536





30





2,482





13,018





34,066Buy-to-let


4,195





2,780





324











7,29922,731





2,810





2,806





13,018





41,365Other personal


2,857





988





396











4,241Property and construction


1,335





8,287





2,477











12,099SME/Other commercial


3,036





6,936





3,198











13,170Corporate








3,371

















3,371Total


29,959





22,392





8,877





13,018





74,246Analysed as to asset qualitySatisfactory(1)


20,072





8,403





5,779





9,066





43,320Watch(2)


2,552





1,458





1,282





1,000





6,292Vulnerable(3)


2,209





1,590





976





403





5,178Impaired(4)


5,126





10,941





840





2,549





19,456Total criticised loans


9,887





13,989





3,098





3,952





30,926Total loans percentage


%





%





%





%





%Criticised loans/total loans


33





62





35





30





42Impaired loans/total loans


17





49





9





20





26Impairment provisions  statement of financial positionSpecific


2,811





5,711





385





563





9,470IBNR


332





413





151





152





1,048Total impairment provisions


3,143





6,124





536





715





10,518Provision cover percentage


%





%





%





%





%Specific provisions/ impaired loans


55





52





46





22





49Total provisions/impaired loans


61





56





64





28





54Total provisions/total loans


10





27





6





5





14Impairment charge/average loans


1.68





3.83





1.03





1.79





2.29  2012Non-Core




TotalGross loans and receivables to customers*



PBB




CICB




AIB UK




EBS




Group




Total
Non-Core m




 m




 m




 m




 m




 m




 mResidential mortgagesOwner occupier
















101

















101





34,167Buy-to-let




24





341





83





607











1,055





8,35424





341





184





607











1,156





42,521Other personal




3





384





70

















457





4,698Property and construction




4





6,912





2,958





278











10,152





22,251SME/Other commercial




1





358





1,716

















2,075





15,245Corporate










1,786























1,786





5,157Total




32





9,781





4,928





885











15,626





89,872Analysed as to asset qualitySatisfactory(1)




9





2,498





1,131





243











3,881





47,201Watch(2)




1





430





152





145











728





7,020Vulnerable(3)




5





358





644





50











1,057





6,235Impaired(4)




17





6,495





3,001





447











9,960





29,416Total criticised loans




23





7,283





3,797





642











11,745





42,671Total loans percentage




%





%





%





%





%





%





%Criticised loans/total loans




73





74





77





72











75





47Impaired loans/total loans




53





66





61





51











64





33Impairment provisions  statement of financial positionSpecific




8





3,979





1,574





154











5,715





15,185IBNR










136





93





66











295





1,343Total impairment provisions




8





4,115





1,667





220











6,010





16,528Provision cover percentage




%





%





%





%





%





%





%Specific provisions/ impaired loans




46





61





52





34











57





52Total provisions/impaired loans




49





63





56





49











60





56Total provisions/total loans




26





42





34





25











38





18Impairment charge/average loans




6.01





4.00





4.31





(0.37
)










3.67





2.57








| |  |                                                             |  |   
| |  | ----------------------------------------------------------- |  | --
| |  | *Forms an integral part of the audited financial statements |  |   
| |  |                                                             |  | 81



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|LOGO |  | Risk management |  | 






3.1 Credit riskCredit profile of the loan portfolio  CoreGross loans and receivables to customers*

PBB




CICB




AIB UK




EBS




Total
Core m




 m




 m




 m




 mResidential mortgagesOwner occupier


18,626





34





2,711





13,562





34,933Buy-to-let


4,345





3,309





143











7,79722,971





3,343





2,854





13,562





42,730Other personal


2,342





170





466











2,978Property and construction


810





9,275





2,772











12,857SME/Other commercial


3,129





7,721





3,350











14,200Corporate








4,203

















4,203Total


29,252





24,712





9,442





13,562





76,968Analysed as to asset qualitySatisfactory(1)


21,539





12,490





6,669





9,929





50,627Watch(2)


2,972





2,144





1,423





1,116





7,655Vulnerable(3)


2,028





1,258





860





279





4,425Impaired(4)


2,713





8,820





490





2,238





14,261Total criticised loans


7,713





12,222





2,773





3,633





26,341Total loans percentage


%





%





%





%





%Criticised loans/total loans


26





50





29





27





34Impaired loans/total loans


9





36





5





17





19Impairment provisions  statement of financial positionSpecific


1,453





4,181





241





403





6,278IBNR


786





874





203





58





1,921Total impairment provisions


2,239





5,055





444





461





8,199Provision cover percentage


%





%





%





%





%Specific provisions/ impaired loans


54





47





49





18





44Total provisions/impaired loans


83





58





91





21





58Total provisions/total loans


8





21





5





3





11Impairment charge/average loans  Non-Core




2011
TotalGross loans and receivables to customers*

PBB




CICB




AIB UK




EBS




Group




Total Non-Core m




 m




 m




 m




 m




 m




 mResidential mortgagesOwner occupier








178





112











54





344





35,277Buy-to-let














291





1,861











2,152





9,949





178





403





1,861





54





2,496





45,226Other personal


838





1,418





86

















2,342





5,320Property and construction


651





6,842





3,244





896











11,633





24,490SME/Other commercial


15





20





2,052

















2,087





16,287Corporate








3,161























3,161





7,364Total


1,504





11,619





5,785





2,757





54





21,719





98,687Analysed as to asset qualitySatisfactory(1)


564





4,725





1,777





978





42





8,086





58,713Watch(2)


181





467





184





364





-





1,196





8,851Vulnerable(3)


230





500





1,026





109





-





1,865





6,290Impaired(4)


529





5,927





2,798





1,306





12





10,572





24,833Total criticised loans


940





6,894





4,008





1,779





12





13,633





39,974Total loans percentage


%





%





%





%





%





%





%Criticised loans/total loans


63





59





69





65





22





63





41Impaired loans/total loans


35





51





48





47





22





49





25Impairment provisions  statement of financial positionSpecific


391





3,923





1,308





354





3





5,979





12,257IBNR


131





268





224





134





6





763





2,684Total impairment provisions


522





4,191





1,532





488





9





6,742





14,941Provision cover percentage


%





%





%





%





%





%





%Specific provisions/ impaired loans


74





66





47





27





25





57





49Total provisions/impaired loans


99





71





55





37





75





64





60Total provisions/total loans


35





36





27





18





17





31





15Impairment charge/average loans






































7.84








|   |  |                                                            
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|   |  | *Forms an integral part of the audited financial statements
|82 |  |                                                            



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##### Table of Contents

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| |  |  |  | ----
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3.1 Credit risk - Credit profile of the loan portfolio Gross loans and receivables to customers amounted to  89.9 billion at
31 December 2012 down from  98.7 billion at 31 December 2011 and include  0.5 billion which are classified as held for sale ( 1.2 billion at 31 December 2011). The reduction reflects the continued deleveraging of non-core assets, particularly in the CICB and AIB UK market segments and the sale of a portion of the buy-to-let
portfolio in EBS. The reduction is also impacted by the demand for credit from customers being exceeded by repayments of debt. The Group has a Non-Core unit which
actively manages the disposal of selected assets under the Groups deleveraging programme. While Non-Core is a distinct business segment, credit management activities, including the day to day interaction with borrowers, is undertaken by the
market segments. During 2012, the Group refined its definition of non-core assets to ensure all cross-collateralised elements of borrower connections were maintained in the respective areas. This resulted in the transfer of  3.3 billion from core into non-core assets and  4.1 billion from non-core to core assets resulting in a net
transfer of  0.8 billion into core assets. The on-going difficult economic environment, particularly in Ireland where
the majority of the Groups loans and advances to customers are concentrated, continued to impact credit quality with borrowers experiencing difficulty in meeting their debt repayments. Consequently, there was a significant amount of
restructuring activity with regard to existing facilities in the period. Details relating to this type of activity as it applies to the residential mortgage portfolio in Ireland are provided on pages 92  104. At 31 December 2012, the
Group was not in a position to systematically capture restructuring/forbearance activity at a portfolio level as it related to non-mortgage loans and receivables. However, this is being addressed and information on a Group basis will be available in
2013. In the interim, it should be noted that criticised loans, which largely comprise customers in difficulty, either restructured or requiring restructuring, are in general, managed by dedicated specialised lending teams where intense case
management is provided with a view to minimising loan losses through pro-active monitoring and control. At 31 December 2012, non mortgage criticised loans amounted to
 28.6 billion (31 December 2011:  27 billion) of which  21.3
billion were impaired with specific provisions of  12.5 billion providing cover of 59% (31 December 2011: impaired loans  18.5 billion, specific provisions  10.5 billion, cover of 57%). Total statement of financial position provisions to total loans were 18% up from 15% at 31 December 2011. The income statement provision charge for loans and receivables was 
2,434 million or 2.57% of average customer loans compared with  7,774 million or 7.84% in 2011 (excluding provisions for loans held for sale to NAMA). The provision comprised  3,756 million in specific provisions and a release of IBNR provisions of  1,322 million (31 December 2011: 
7,595 million in specific provisions and an IBNR provision charge of  179 million). The movement in IBNR
provisions of  1,322 million was due to the level of specific provisions raised during 2012 which had largely been provided in IBNR provisions at
31 December 2011, based on managements view of the incurred loss inherent in the portfolio at that time, as evidenced by the level of arrears, requests for forbearance and vulnerable loans. The portfolios most impacted were the property
and construction portfolio where the release was  659 million due, in particular, to the level of specific provisions raised in 2012 in the property investment sub-sector, and  369 million for the residential mortgage portfolio which largely resulted from specific provisions being taken during the year, particularly for mortgages in forbearance. IBNR provisions were also reduced
by  205 million,  84 million and  5 million in the SME/other commercial, other personal and
corporate portfolios, respectively. The financial position IBNR provisions amounted to
 1,343 million which represented 2.22% of non-impaired loans (3.63%: 31 December 2011). The outcomes of independent reviews of certain higher
risk portfolios helped to inform managements view of the incurred loss remaining in the performing book and the appropriate level of IBNR provisions required. Core portfolio  74.2 billion: At 31 December 2012, the core portfolio amounted to  74.2 billion and
has reduced from  77.0 billion at 31 December 2011. As mentioned above, the Group refined its definition of
non-core assets during the year which resulted in a net transfer into Core of approximately  0.8 billion. However, there were further underlying reductions
of  3.6 billion across all sectors in the core portfolio reflecting the impact of repayments and lower levels of demand for credit as a result of the continuing difficult economic environment,
particularly in Ireland, where household deleveraging and subdued consumer sentiment are still in evidence.  30.9 billion or 42% of the core portfolio was criticised (31 December 2011:  26.3 billion or 34%) of which  19.5
billion was impaired (31 December 2011:  14.3 billion). Excluding the reclassification of core/non-core assets during the year, the increase in criticised and impaired loans was  3.8 billion and  4.4 billion respectively. 55.7% or  41.4 billion of the core portfolio related to residential mortgages which comprised  34.1 billion in owner-occupier
mortgages and a further  7.3 billion in buy-to-let mortgages. Arrears in the residential mortgage portfolio in Ireland continued to increase, albeit at a slower pace in the second half of 2012 compared
with the first half, as borrowers repayment capacity was impacted by high unemployment and a general reduction in disposable income through increased taxes and pay reductions. Further detailed disclosures in relation to the total Republic of
Ireland residential mortgage portfolio of  39.5 billion, and forbearance activity and arrears for this portfolio are provided on pages 101  104.








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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio(continued) Core portfolio  74.2 billion: (continued) Core property and construction loans amounted to  12.1 billion and comprised
property investment loans of  9.7 billion, land and development loans of  1.9 billion and other property and construction loans of  0.5 billion (31 December 2011:  11.5 billion,  0.8 billion and  0.6
billion respectively).  6.2 billion of the property investment
portfolio of  9.7 billion related to loans for the purchase of property in the Republic of Ireland,  3.3 billion in the United Kingdom, and  0.2 billion in other geographical areas. While the investment property market in Ireland remains challenging, there is some evidence that prime rents and yields for office and retail properties stabilised in
2012, however, secondary yields continued to weaken.  6.7 billion of
the core property investment portfolio was criticised (31 December 2011:  6.2 billion) of which  5.0 billion was impaired (31 December 2011: 3.9 billion). The Group had core statement of financial position specific provisions of  2.3 billion providing cover of 45% for impaired loans (31 December 2011:  1.7 billion or 43%) and total provisions to total loans of 25% (31 December 2011: 20%). The income statement provision charge for the core property investment portfolio was
 317 million compared with  1,270 million for 2011, reflecting the slowing down in the pace of new impaired loans in the period. Core land and development loans amounted to  1.9 billion at
31 December 2012, up from  0.8 billion at 31 December 2011. This increase was influenced primarily by the reclassification of non-core assets in the Group during 2012 which resulted in exposures
relating to loans being transferred from non-core to the core portfolio. The portfolio largely relates to loans for the purchase of property and land in Ireland of  1.4 billion and  0.5 billion in the United Kingdom.  1.6 billion of the core land and development portfolio was criticised (31
December 2011:  0.2 billion) of which  1.2 billion was impaired (31 December 2011:  0.1 billion). The increase in
criticised and impaired loans compared with 31 December 2011 is largely due to the majority of the loans which transferred back from the non-core portfolio being criticised, with a substantial portion of these also being impaired. The Group had
core statement of financial position specific provisions of  867 million providing cover of 71% for land and development impaired loans (31 December 2011:
 47 million or 47%) and total provisions to total loans of 47% (31 December 2011: 8%). The significant increase in provision cover was largely due to the reclassification of core/non-core assets
resulting in approximately  0.8 billion of impaired assets which were heavily provided for when transferred back into the core portfolio. The income statement provision charge for the year was  26 million compared with  53 million in 2011 and reflects the relatively low level of new impaired loans downgraded in the year compared with the previous
year. Further detailed profiles of the property and construction portfolios by market segment are provided on pages 115  117. The remaining core portfolio
consisted of:  0.5 billion in property loans;  0.4 billion in contractors;
 0.1 billion in housing associations;  4.2 billion in other personal loans;  13.2 billion to SME/other commercial
borrowers; and  3.4 billion to corporate borrowers. These portfolios are profiled in more detail on pages 112  114 and 118  121. The Group held total core statement of financial position specific provisions of
 9.5 billion providing cover of 49% on impaired loans of  19.5 billion (31 December 2011:  6.3 billion or 44%). Total core provisions to total core loans was 14% (31 December 2011: 11%). The income statement
provision charge for total core loans and receivables to customers was  1,744 million or 2.29% of average core customer loans. The core provision
charge comprised  2,679 million in specific provisions and a release of  935 million in IBNR provisions as outlined above (31 December 2011: specific
provisions  4,168 million and an IBNR provision charge of  368 million). Non-Core portfolio  15.6 billion: The non-core portfolio amounted to  15.6 billion (31 December 2011:  21.7 billion) following: the net transfer of  0.8 billion as a result of the reclassification of non-core assets by the Group during the year; disposals as part of
the deleveraging programme including the sale of buy-to-let mortgages in EBS; targeted non-refinancing of loans; and repayments. The portfolio now largely comprises property and construction and SME/other commercial loans at  10.2 billion and  2.1 billion respectively with a further  1.8 billion to corporate borrowers,  1.2 billion related to residential mortgages and  0.5 billion in other personal loans. The non-core property and construction portfolio of  10.2 billion included  5.2 billion in property investment loans ( 2.9 billion related to loans for the purchase of property in Ireland,  1.6
billion in the United Kingdom,  0.2 billion in the United States of America and  0.5 billion in other geographical locations) and
 4.6 billion in land and development loans ( 3.2 billion in Ireland and  1.4 billion in the United Kingdom). There
was a further  0.3 billion relating to loans to housing associations in the United Kingdom.








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3.1 Credit riskCredit profile of the loan portfolio Non-Core portfolio  15.6 billion:(continued)  11.7 billion of the total non-core portfolio was criticised of which  10.0 billion was impaired (31 December 2011:  13.6 billion and  10.6 billion respectively). Excluding the
reclassification of core/non-core assets during the year, the underlying decrease in criticised loans since 31 December 2011 was  1.1 billion, largely as a result of deleveraging in the portfolio. The Group had non-core statement of financial position specific provisions of
 5.7 billion providing cover of 57% for impaired loans (31 December 2011:  6.0 billion or 57%) and total
provisions to total loans of 38% (31 December 2011: 31%). The Non-Core income statement provision charge was  690 million or 3.67% of average non-core customer loans for the year to 31 December 2012 and comprised  1,077 million in specific provisions
and a movement of  387 million in IBNR provisions as outlined above (31 December 2011: 3,427 million and
 189 million respectively). The provision charge for land and development loans of  309 million accounted for 45% of the total non-core provision charge and reflected the impact that the lack of activity in this sector has had on the
portfolio. The following table profiles the asset quality of the Groups loans and receivables as at 31 December 2012 and 31 December 2011.  2012Of whichAsset quality*

Mortgages
  m


Other
  m


Property and construction 
m


SME/other commercial 
m


Corporate
  m


Total
  m


Core
  m


Non-Core
 mNeither past due nor impaired


32,318



2,902



7,554



9,309



4,334



56,417



51,152



5,265Past due but not impaired


2,073



365



893



688



20



4,039



3,638



401Impaired - provisions held


8,130



1,431



13,804



5,248



803



29,416



19,456



9,960Gross loans and receivables


42,521



4,698



22,251



15,245



5,157



89,872



74,246



15,626Provisions for impairment


(3,206)



(1,139)



(8,104)



(3,496)



(583
)


(16,528)



(10,518)



(6,010
)39,315



3,559



14,147



11,749



4,574



73,344



63,728



9,616Deferred costs






















89Unearned income






















(108)Net loans and receivables






















73,3252011Of whichAsset quality*

Mortgages
  m


Other
  m


Property and construction
 m


SME/other commercial  m


Corporate
  m


Total
  m


Core
  m


Non-Core
 mNeither past due nor impaired


36,614



3,527



11,454



10,871



6,590



69,056



58,943



10,113Past due but not impaired


2,269



459



1,137



854



79



4,798



3,764



1,034Impaired - provisions held


6,343



1,334



11,899



4,562



695



24,833



14,261



10,572Gross loans and receivables


45,226



5,320



24,490



16,287



7,364



98,687



76,968



21,719Provisions for impairment


(2,681)



(1,063)



(7,568)



(3,093)



(536)



(14,941)



(8,199)



(6,742
)42,545



4,257



16,922



13,194



6,828



83,746



68,769



14,977Deferred costs






















103Unearned income






















(125)Net loans and receivables






















83,724 Profiles of past due but not impaired loans are detailed on pages 86 and 87 and impaired loans are detailed on page 88.








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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Aged analysis of contractually past due but not impaired gross loans and receivables to customers* The table below sets out the aged analysis of contractually past due but not impaired loans and receivables to customers as at 31 December 2012 and 31 December
2011 by: (a) industry sector; (b) core/non-core;
and (c) market segment: Past due but not impaired is defined as
follows: When a borrower fails to make a contractually due payment, a loan is deemed to be past due. Past due days is a term used to describe the cumulative number of days a missed payment is overdue. This category can also include an
element of loans where negotiation with the borrower on new terms and conditions has not concluded to full completion of documentation while the original loan facility remains outside its original terms for more than 90 days. When a loan or exposure
is past due, the entire exposure is reported as past due, not just the amount of any excess or arrears.  2012a) Industry sector

130 days m


3160 days m


6190 days m


91180 days m


181365 days m


> 365 days m


Total
 mAgriculture


55



9



16



13



16



30



139Energy


6











1







1



8Manufacturing


19



4



2



4



7



5



41Property and construction


210



101



66



174



187



155



893Distribution


80



34



28



46



45



42



275Transport


7



5



1



15



1



3



32Financial


4



2



8



6



2



1



23Other services


70



25



17



21



33



24



190PersonalResidential mortgages


1,013



451



248



208



91



62



2,073Credit cards


39



11



9



5



1







65Other


75



32



40



48



47



58



3001,578



674



435



541



430



381



4,039b)     Of which:Core


1,493



624



405



443



358



315



3,638Non-Core


85



50



30



98



72



66



4011,578



674



435



541



430



381



4,039c) Market segmentPBB


571



232



157



186



110



55



1,311CICB


314



142



113



207



272



294



1,342AIB UK


104



78



45



97



40



21



385EBS


589



222



120



51



8



11



1,001Group


























1,578



674



435



541



430



381



4,039As a percentage of


%



%



%



%



%



%



%total gross loans


1.8



0.7



0.5



0.6



0.5



0.4



4.5








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3.1 Credit risk  Credit profile of the loan portfolio Aged analysis of contractually past due but not impaired gross loans and receivables to customers*(continued)  2011a) Industry sector

130 days m


3160 days m


6190 days m


91180 days m


181365 days m


> 365 days m


Total
 mAgriculture


54



37



10



11



19



13



144Energy


4







1



2



2



1



10Manufacturing


24



16



2



5



6



2



55Property and construction


391



163



115



171



184



113



1,137Distribution


153



75



45



148



35



23



479Transport


10



7



2



4



2



1



26Financial


6



1



1



2



4







14Other services


87



30



13



17



38



20



205PersonalResidential mortgages


1,067



489



253



294



126



40



2,269Credit cards


50



16



11



8



1







86Other


126



60



34



56



53



44



3731,972



894



487



718



470



257



4,798b)     Of which:Core


1,602



759



418



555



305



125



3,764Non-Core


370



135



69



163



165



132



1,0341,972



894



487



718



470



257



4,798c) Market segmentPBB


563



362



203



299



152



41



1,620CICB


460



282



182



338



275



188



1,725AIB UK


220



62



30



47



20



6



385EBS


727



188



72



34



23



22



1,066Group


2























21,972



894



487



718



470



257



4,798As a percentage of


%



%



%



%



%



%



%total gross loans


2.0



0.9



0.5



0.7



0.5



0.3



4.9 The figures reported are inclusive of overdrafts, bridging loans and cases with expired limits. Loans past due but not impaired were  4.0 billion or 4.5 % of total
loans and receivables to customers (31 December 2011:  4.8 billion or 4.9%). Residential mortgage loans past due but
not impaired at  2.1 billion represent 51% of the total past due but not impaired loans (31 December 2011: 
2.3 billion represent 47%) largely driven by decreases in household income and the high level of unemployment. Property and construction loans past due but not impaired represent a further 22% or  0.9
billion (31 December 2011: 24% or  1.1 billion) with other personal at 9% or  0.4 billion (31 December 2011: 10% or
 0.5 billion).








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3.1 Credit risk  Credit profile of the loan portfolio Impaired loans for which provisions are held The following table shows
impaired loans which are assessed for impairment either individually or collectively with the relevant specific impairment provisions:  2012*Impaired loans




Specific
impairmentprovisionsGross loansandreceivables
 m




Individuallyassessed
  m




Collectivelyassessed
  m




Total

  m




% oftotal
loans




Total

  m




% ofimpairedloansRetailResidential mortgages


42,521





3,888





4,242





8,130





19





2,699





33Other personal lending


4,698





863





568





1,431





30





1,064





74Total retail


47,219





4,751





4,810





9,561





20





3,763





39CommercialProperty and construction


22,251





13,306





498





13,804





62





7,681





56SME/commercial


15,245





4,559





689





5,248





34





3,256





62Total commercial


37,496





17,865





1,187





19,052





51





10,937





57Corporate


5,157





803











803





16





485





60Total


89,872





23,419





5,997





29,416





33





15,185





52Specific impairment provisions at 31 December 2012








12,515





2,670





15,185%





%





%Specific provision cover percentage








53





45





522011Impaired loans




Specific
impairmentprovisionsGross loansandreceivables m




Individuallyassessed
  m




Collectivelyassessed
  m




Total

  m




% of
totalloans




Total

  m




% ofimpairedloansRetailResidential mortgages


45,226





2,859





3,484





6,343





14





1,787





28Other personal lending


5,320





764





570





1,334





25





903





68Total retail


50,546





3,623





4,054





7,677





15





2,690





35CommercialProperty and construction


24,490





11,557





342





11,899





49





6,469





54SME/commercial


16,287





4,060





502





4,562





28





2,665





58Total commercial


40,777





15,617





844





16,461





40





9,134





55Corporate


7,364





695





-





695





9





433





62Total


98,687





19,935





4,898





24,833





25





12,257





49Specific impairment provisions at 31 December 2011








10,318





1,939





12,257%





%





%Specific provision cover percentage








52





40





49








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3.1 Credit risk  Credit profile of the loan portfolio Movements on impairment provisions The following table sets out the movements
on the Group impairment provisions for the year ended 31 December 2012:  2012*Of whichTotal
 m


Core
 m


Non-Core  mAt 1 January 2012


14,945



8,203



6,742Exchange translation adjustments


47



11



36Transfers


34



968



(934)Charge against income statement


2,434



1,744



690Amounts written off


(673)



(404)



(269)Disposals


(263)







(263)Recoveries of amounts written off in previous years


4







4Provisions on loans and receivables returned by NAMA


4







4At 31 December 2012


16,532



10,522



6,010Total provisions are split as follows:Specific


15,189



9,474



5,715IBNR


1,343



1,048



29516,532



10,522



6,010Amounts include:Loans and receivables to banks (note 28)


4



4



Loans and receivables to customers (note 29)


16,406



10,518



5,888Loans and receivables of disposal groups and non-current assets held for sale (note 25)


122







12216,532



10,522



6,010 Provisions  income statement The
following table sets out the provision charge in the income statement for the years ended 31 December 2012 and 31 December 2011:  2012*


2011Core m


Non-Core m


Total   
m


Core


Non-Core


Total  mProvisions for impairment on loans and receivables to customers


1,744



690



2,434



4,536



3,238



7,774Provisions for impairment on loans and receivables held for sale to NAMA


















87



87Total provisions for impairment on loans and receivables


1,744



690



2,434



4,536



3,325



7,861Charge/(writeback) of provisions for liabilities and commitments


4



5



9



(422)



6



(416)Provisions for impairment on financial investments available for sale


84



2



86



275



8



283Total


1,832



697



2,529



4,389



3,339



7,728 While there were some initial signs of improvement in the Irish economy where the majority of the Groups exposure is concentrated,
continuing high unemployment, low levels of activity in the property sector, and the impact of the on-going austerity measures influenced the credit quality profile of the Groups loans and receivables to customers and associated provision
levels for the year to 31 December 2012. The income statement provision charge for loans and receivables for the year to 31 December 2012 was  2,434 million or 2.57% of average customer loans compared with  7,774 million or 7.84% in 2011 (excluding
provisions for loans held for sale to NAMA). The provision comprised  3,756 million in specific provisions and a release of IBNR provisions of 
1,322 million as outlined on page 83 (2011: 7,595 million in specific provisions and IBNR charge of  179 million) split
 1,744 million for core loans and receivables and  690 million for non-core. A provision of  9 million for liabilities and commitments was raised in
2012. The provision for impairment on financial instruments available for sale of
 86 million related to equity investments of which NAMA subordinated bonds accounted for  82 million.








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3.1 Credit risk  Credit profile of the loan portfolio Provisions  income statement(continued) The
following table analyses by market segment the income statement impairment provision charge/(credit) for loans and receivables to customers for the years ended 31 December 2012 and 31 December 2011:  2012*Core


Non-Core


TotalMortgages m


Other m


Total    
m


Mortgages m


Other  m


Total   m


Mortgages m


Other  m


Total mPBB


318



176



494







48



48



318



224



542CICB


169



747



916



1



415



416



170



1,162



1,332AIB UK


10



87



97



8



226



234



18



313



331EBS


237







237



6



(14)



(8)



243



(14)



229Total


734



1,010



1,744



15



675



690



749



1,685



2,434  2011Mortgages m


Other m


Total mPBB




703



723



1,426CICB




499



4,439



4,938AIB UK




99



988



1,087EBS




305



18



323Total




1,606



6,168



7,774 The following table analyses by market segment the impairment provision charge/(credit) as a percentage of average loans expressed as
basis points (bps) for the years ended 31 December 2012 and 31 December 2011:  2012Core


Non-Core


TotalMortgagesbps


Otherbps


Total    bps


Mortgagesbps


Other bps


Total bps


Mortgagesbps


Other bps


TotalbpsPBB


140



263



168



278



606



601



140



297



179CICB


545



359



383



37



409



400



504



376



388AIB UK


35



133



103



258



442



431



57



269



223EBS


179







179



40



(176)



(37)



166



(176)



149Total


175



297



229



75



402



367



170



331



257  2011Mortgagesbps


Otherbps


TotalbpsPBB




301



876



451CICB




1,386



1,230



1,244AIB UK




302



807



70EBS




396



385



395Group




17







17Total




418



1,076



784








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3.1 Credit risk  Credit profile of the loan portfolio Provisions for impairment  income statement The following table analyses
the income statement impairment provision charge/(credit) split between individually significant, individually insignificant and IBNR for loans and receivables to customers for the years ended 31 December 2012 and 31 December 2011:  2012*


2011Impairment charge by nature of impairment provision

 m


 mIndividually significant


2,821



6,470Individually insignificant


935



1,124IBNR


(1,322)



180Total


2,434



7,774
(1) (1)Excludes
 87 million relating to loans and receivables held for sale to NAMA. Core provisions* The Core provision charge of  1,744 million comprised  2,679 million of specific provisions and a release of  935 million of IBNR provisions (31 December 2011:  4,168 million and an IBNR provision charge of  368
million). The movement in IBNR provisions occurred in the following portfolios:
 328 million related to residential mortgages;  362 million to property and construction loans;  162 million,  78 million and  5 million respectively to the SME/other commercial, other personal and
corporate sectors where IBNR provisions raised in previous periods, have now been reflected in the specific provision charge at 31 December 2012 and following independent reviews of certain higher risk portfolios which helped inform
managements view of incurred loss remaining in the performing book. 42% or
 734 million of the Core provision charge related to residential mortgages where the portfolio has experienced an increase in impaired loans as
borrowers repayment capacity was impacted by the difficult economic environments in Ireland and the United Kingdom. The charge occurred in PBB (owner-occupier  219 million and buy-to-let  99 million); in EBS where the charge of  237 million related to the owner-occupier mortgage portfolio; 
169 million in CICB where the charge related to the buy-to-let mortgage sector; and  10 million in AIB UK.  378 million of the Core provision charge related to the property and construction sector, primarily in the CICB market segment where the charge was  290 million; PBB  50 million; and  38 million in AIB UK. The Core provision charge in the SME/other commercial sector was 
443 million and was largely incurred in the distribution (hotels, licensed premises and retail/wholesale) and other services sectors as a result of the continuing pressure on SMEs, particularly in Ireland, who are heavily dependent on the
domestic economy which remained challenged during 2012. A further  148 million of the provision charge related to the other personal portfolio where borrowers capacity to repay continued to be
impacted by high levels of unemployment and reduced incomes, and  39 million related to the corporate portfolio. Non-Core provisions* The non-core provision charge of  690 million comprised  1,077 million in specific provisions and a release of  387 million in IBNR provisions (31 December 2011:  3,427 million and  189 million). The non-core provision charge was largely driven by provisions of 
403 million in the property and construction sector. These occurred mainly in the land and development sub-sector (CICB  165 million; PBB  20 million; and
AIB UK  124 million) which reflected the impact that the lack of activity in this sector has had on the portfolio where 95% of loans were impaired at 31 December 2012. The provision charge for
property investment was  103 million and was incurred primarily in CICB  51 million, AIB UK 
59 million and PBB  7 million, reflecting the pressure that borrowers in Ireland and the UK are experiencing as a result of poorer rental incomes and yields where properties are in secondary
locations. There was a release of IBNR provisions of  14 million in EBS relating to property investment loans and a further  9 million, largely in
AIB UK relating to loans to housing associations. The provision charge in the non-core corporate portfolio was  128 million and included a significant provision in the transport sub-sector. The SME/other commercial, other personal and residential mortgage sectors accounted for
 74 million,  71 million and  15 million respectively of the non-core provision charge, as
borrowers in these sectors continued to be impacted by the weak Irish and UK economies, with lower turnover, high unemployment and reduced incomes.








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3.1 Credit risk  Credit profile of the loan portfolio Loans and receivables to customers  Residential mortgages* Residential mortgages amounted to  42.5 billion at 31 December 2012.
This compares to  45 billion at 31 December 2011. The split of the residential mortgage book was owner-occupier  34.2 billion (31 December 2011:  35 billion) and buy-to-let  8.3 billion (2011:  10 billion). The income statement impairment charge for 2012 was  0.7 billion or 1.70% of average residential mortgages, comprising  1.1 billion specific charge and a release of IBNR of
 0.4 billion (2011:  1.6 billion or 3.4% of average residential mortgages, comprising  1.4 billion specific charge
and  0.2 billion IBNR charge). Statement of financial position provisions of  3.2 billion were held at 31 December 2012, split  2.7 billion specific and  0.5 billion IBNR (31 December 2011:  2.6 billion, split
 1.7 billion specific and  0.9 billion IBNR). This section provides the
following information in relation to residential mortgages: Republic of Ireland residential mortgages  pages 93 to 104  

Credit profile  

Origination profile  

Loan-to-value profile: Actual and weighted average indexed loan-to-value ratios of residential mortgages Loan-to-value ratios of residential mortgages (index linked)that were neither past due nor impaired Loan-to-value ratios of residential mortgages (index linked)that were greater than 90 days past due and/or impaired  

Credit quality profile of residential mortgages  

Residential mortgages which were past due but not impaired  

Residential mortgages which were impaired  

Forbearance: Owner occupier Buy-to-let Total  

Repossessions AIB UK residential mortgages  pages 105 to 111  

Credit profile  

Origination profile  

Loan-to-value profile: Actual and weighted average indexed loan-to-value ratios of AIB UK residential
mortgages Loan-to-value ratios of AIB UK residential mortgages (index linked)that were neither past due nor impaired Loan-to-value ratios of AIB UK residential mortgages (index linked)that were greater than 90 days past due and/or impaired  

Credit quality profile  

AIB UK residential mortgages which were past due but not impaired  

AIB UK residential mortgages which were impaired  

Repossessions








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|92 |  |                                                            



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3.1 Credit risk - Credit profile of the loan portfolio(continued) Loans and receivables to customers  Republic of Ireland residential mortgages The following table analyses the Republic of Ireland residential mortgage portfolio by market segment showing impairment provisions for the years ended 31 December
2012 and 31 December 2011:  PBB


CICBStatement of financial position

Owner-occupier m


Buy-to-let
  m


Total
  m


Owner-occupier m


Buy-to-let
  m


Total
  mTotal gross residential mortgages


18,536



4,219



22,755



30



3,121



3,151In arrears (>30 days past due)(2)


2,286



1,239



3,525



19



1,990



2,009In arrears (>90 days past due)(2)


2,091



1,166



3,257



19



1,954



1,973Of which impaired


1,955



1,099



3,054



19



1,895



1,914Statement of financial position specific provisions


655



441



1,096



6



798



804Statement of financial position IBNR provisions


170



46



216







38



38Provision cover percentage


%



%



%



%



%



%Specific provisions/impaired loans


33.5



40.1



35.9



29.7



42.1



42.0Income statement


 m



 m



 m



 m



 m



 mIncome statement specific provisions


376



253



629







268



268Income statement IBNR provisions


(157)



(154)



(311)







(98)



(98)Total impairment provisions


219



99



318







170



170  2012*EBS


TotalStatement of financial position

Owner-occupier m


Buy-to-let
  m


Total
  m


Owner-occupier m


Buy-to-let
  m


Total
  mTotal gross residential mortgages


13,018



607
(1)


13,625



31,584



7,947



39,531In arrears (>30 days past due)(2)


2,919



353



3,272



5,224



3,582



8,806In arrears (>90 days past due)(2)


2,592



343



2,935



4,702



3,463



8,165Of which impaired


2,549



339



2,888



4,523



3,333



7,856Statement of financial position specific provisions


563



126



689



1,224



1,365



2,589Statement of financial position IBNR provisions


152



28



180



322



112



434Provision cover percentage


%



%



%



%



%



%Specific provisions/impaired loans


22.1



37.2



23.9



27.1



41.0



33.0Income statement


 m



 m



 m



 m



 m



 mIncome statement specific provisions


143



30



173(3)



519



551



1,070Income statement IBNR provisions


94



(24)



70



(63)



(276)



(339)Total impairment provisions


237



6



243



456



275



731 (1)All Non-Core. (2)Includes all impaired loans whether past due or not. (3)Inclusive of a settlement received in respect of Mortgage Indemnity Insurance.








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| |  | *Forms an integral part of the audited financial statements |  |   
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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk - Credit profile of the loan portfolio(continued) Loans and receivables to customers  Republic of Ireland residential mortgages(continued)  PBB




CICB(1)Statement of financial position

Owner-occupier m


Buy-to-let 
 m


Total 
 m




Owner-occupier m


Buy-to-let 
 m


Total 
 mTotal gross residential mortgages


18,626



4,345



22,971





34



3,309



3,343In arrears (>30 days past due)(4)


1,471



734



2,205





22



1,657



1,679In arrears (>90 days past due)(4)


1,212



616



1,828





22



1,580



1,602Of which impaired


1,008



510



1,518





21



1,496



1,517Statement of financial position specific provisions


305



189



494





5



555



560Statement of financial position IBNR provisions


327



200



527









137



137Provision cover percentage


%



%



%





%



%



%Specific provisions/impaired loans


30.2



37.1



32.6





25.8



37.1



37.0Income statement


 m



 m



 m





 m



 m



 mIncome statement specific provisions


236



156



392





5



475



480Income statement IBNR provisions


175



136



311









(16
)


(16)Total impairment provisions


411



292



703





5



459



464  2011EBS(2)




TotalStatement of financial position

Owner-occupier m


Buy-to-let 
 m


Total 
 m




Owner-occupier m


Buy-to-let 
 m


Total 
 mTotal gross residential mortgages


13,492



1,861
(3)


15,353





32,152



9,515



41,667In arrears (>30 days past due)(4)


2,459



805



3,264





3,952



3,196



7,148In arrears (>90 days past due)(4)


2,238



785



3,023





3,472



2,981



6,453Of which impaired


2,238



765



3,003





3,267



2,771



6,038Statement of financial position specific provisions


403



213



616





713



957



1,670Statement of financial position IBNR provisions


58



67



125





385



404



789Provision cover percentage


%



%



%





%



%



%Specific provisions/impaired loans


18.0



27.8



20.5





21.8



34.6



27.7Income statement


 m



 m



 m





 m



 m



 mIncome statement specific provisions


324



114



438





565



745



1,310Income statement IBNR provisions


(116
)


(17
)


(133)





59



103



162Total impairment provisions


208



97



305





624



848



1,472 (1)Excludes purchased residential mortgage loan
pools of  178 million in CICB. In 2012, these loans are shown in Financial sector. (2)Excludes deferred costs of  70 million in EBS. In 2012, the EBS residential mortgage portfolio includes deferred costs. (3)All Non-Core. (4)Includes all impaired loans whether past due or not.








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3.1 Credit risk  Credit profile of the loan portfolio Loans and receivables to customers  Republic of Ireland residential mortgages(continued) Residential mortgages in the Republic of Ireland (managed in the PBB, CICB & EBS market segments) amounted to  39.5 billion compared to  41.7 billion at 31 December 2011, the decrease mainly relating to the deleveraging of
 1.2 billion of buy-to-let mortgages in EBS in 2012. The split of the residential mortgage book was owner-occupier  31.6 billion and buy-to-let  7.9 billion (31 December 2011: owner-occupier  32.2 billion and buy-to-let  9.5 billion) and comprised 42% tracker
rate, 46% variable rate and 12% fixed rate mortgages. The total income statement provision charge for 2012 was  0.7 billion or 1.79% of average residential mortgages, comprising  1.0 billion specific charge and a release of IBNR of  0.3 billion. Statement of financial position provisions of  3.0
billion were held at 31 December 2012, split  2.6 billion specific provisions and  0.4 billion IBNR provisions. 56% of the total residential mortgage book
was in negative equity caused by the decrease in house prices in the last number of years and resulting in a quantum of negative equity of  6.0 billion at 31 December 2012. Total owner-occupier and
buy-to-let impaired loans increased from  6.0 billion at 31 December 2011 to  7.9 billion at 31 December 2012. The level of loans greater than 90 days in arrears and/or impaired in the Republic of Ireland was 20.7% at 31 December 2012 compared to 15.5% at 31 December
2011. Residential mortgages are assessed for impairment when they are past due, typically for more than ninety days, or if the borrower exhibits an inability to meet their obligations to the Group based on objective evidence of loss events
(impairment triggers), such as a request for a forbearance measure. The portfolio also continues to experience an increase in arrears as borrowers repayment capacity continues to be impacted by the current economic climate and high
levels of personal debt. The pace of increase in arrears slowed during the year, particularly in comparison to the first half of the year. The level of loans
greater than 90 days in arrears and/or impaired in the owner-occupier book increased from  3,472 million or 10.8% at 31 December 2011 to  4,702 million or 14.9% at 31 December 2012. Decreases in household income and the high level of unemployment continue to be principal drivers of increased arrears and impaired loans in the
owner-occupier book, coupled with an increase in the impairment of owner-occupier loans that are not past due, where evidence exists of other impairment triggers within the book, as mentioned above. The level of loans greater than 90 days in arrears and/or impaired in the buy-to-let book increased from  2,981 million or 31.3% at 31 December 2011 to  3,463 million or 43.6% at 31 December, as the buy-to-let book continues to be impacted by
increased financial pressure on borrowers. Statement of financial position specific provisions of  2.6 billion were held at 31 December 2012 and provided cover of 33% (31 December 2011:  1.7 billion providing cover of 28%), and represents an increase
of  0.9 billion in the period. AIB has used a 55% peak-to-trough house price decline as a base for assessing collateral values, but, where relevant, has applied a discount to reflect a higher decline in
value. IBNR statement of financial position provisions of  434 million were held for the performing book compared to  789 million held at
31 December 2011 and reflects managements view of incurred loss in this book. This view was informed by: the levels of specific provision taken in 2012; the results of independent credit reviews carried out on the more vulnerable elements
of the residential mortgage portfolio; and managements view of the likely specific provisions. The total income statement provision charge for 2012 was  731 million, comprising a specific charge of  1,070 million and a release of IBNR of  339 million, further details of which are outlined on page 83. This compares to a total income statement charge of  1,472 million for 2011, comprising a
specific charge of  1,310 million and an IBNR charge of  162 million. Information on the provisioning policies and methodologies employed in the identification of loans for assessment as impaired is set out in accounting policy number 15
Impairment of financial assets.








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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Residential mortgages by year of origination The following table profiles the
Republic of Ireland total residential mortgage portfolio and impaired residential mortgage portfolio by year of origination at 31 December 2012 and 31 December 2011:  2012*











2011Total


Impaired


Total


ImpairedRepublic of Ireland

Number


Balance
 m


Number


Balances
 m


Number


Balance
 m


Number


Balance  m1996 and before


9,436



237



1,074



37



11,327



298



1,027



351997


3,398



106



367



15



4,271



134



367



161998


4,562



170



502



25



5,189



215



459



301999


6,017



277



670



48



6,723



334



617



452000


7,081



412



801



68



7,730



478



677



582001


7,627



538



882



82



8,169



611



764



722002


11,847



1,053



1,426



169



13,414



1,221



1,217



1442003


16,957



1,732



2,309



322



18,336



1,964



1,848



2622004


22,190



2,769



3,204



556



23,919



3,116



2,509



4522005


30,375



4,362



5,148



1,029



32,571



4,874



3,909



8382006


38,113



6,652



7,529



1,806



40,342



7,264



5,602



1,4012007


36,623



6,670



7,435



1,741



38,423



7,129



5,479



1,2902008


34,983



6,312



5,824



1,388



36,077



6,642



4,286



1,0322009


23,693



3,776



2,104



432



24,490



3,983



1,342



2972010


16,308



2,553



610



120



16,637



2,629



352



642011


4,960



782



74



18



5,030



775



44



22012


7,024



1,130























Total


281,194



39,531



39,959



7,856



292,648



41,667



30,499



6,038 The table shows that 18% of the residential mortgage portfolio originated before 2005, with such loans representing 17% of the impaired
balances at 31 December 2012 (31 December 2011: 20% of the residential mortgage portfolio originated before 2005, with such loans representing 18% of the impaired balances). A further 61% of the residential mortgage portfolio originated between
2005 and 2008, with such loans representing 76% of impaired balances (31 December 2011: 62% of the residential mortgage portfolio originated between 2005 and 2008, with such loans representing 76% of impaired balances). The remainder of the
portfolio (21%) originated since 2008, and represents 7% of the impaired balances at 31 December 2012 (31 December 2011: 18% originated since 2008 representing 6% of the impaired balances).








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3.1 Credit risk  Credit profile of the loan portfolio The property values used in the completion of the following loan-to-value tables are determined with reference to the original or most recent valuation, indexed to the
Central Statistics Office (CSO) Residential Property Price Index. The CSO Residential Property Price Index for December 2012 reported that national residential property prices were 50% lower than their highest level in early 2007 and
reported an annual fall in residential property prices of 4.5% in 2012. Comparative figures as reported by the CSO in December 2011 were 47% and 16.7% respectively. Actual and weighted average indexed loan-to-value ratios of residential mortgages The following table profiles the Republic of Ireland residential mortgage portfolio by the indexed loan-to-value ratios and the weighted average indexed loan-to-value
ratios at 31 December 2012 and 31 December 2011:  2012*Owner-occupier


Buy-to-let


TotalRepublic of Ireland


m


%


 m


%



m


%Less than 50%


3,783



12.0



523



6.6



4,306



10.950% to 70%


3,612



11.4



643



8.1



4,255



10.871% to 80%


2,189



6.9



432



5.4



2,621



6.681% to 90%


2,516



8.0



490



6.2



3,006



7.691% to 100%


2,480



7.9



593



7.5



3,073



7.8101% to 120%


5,438



17.2



1,248



15.7



6,686



16.9121% to 150%


6,264



19.8



1,742



21.9



8,006



20.2Greater than 150%


5,302



16.8



2,276



28.6



7,578



19.2Total


31,584



100.0



7,947



100.0



39,531



100.0Weighted average indexed loan-to-value(1):Stock of residential mortgages at year end






102.7







125.8







107.4New residential mortgages issued during year






76.9







60.2







76.5Impaired residential mortgages






122.1







144.6







131.62011Owner-occupier


Buy-to-let


TotalRepublic of Ireland


m


%


 m


%



m


%Less than 50%


4,132



12.9



682



7.1



4,814



11.650% to 70%


3,843



12.0



871



9.1



4,714



11.371% to 80%


2,173



6.8



534



5.6



2,707



6.581% to 90%


2,347



7.3



638



6.7



2,985



7.291% to 100%


2,586



8.0



741



7.8



3,327



8.0101% to 120%


6,028



18.7



1,585



16.7



7,613



18.3121% to 150%


6,433



20.0



2,251



23.7



8,684



20.8Greater than 150%


4,610



14.3



2,213



23.3



6,823



16.3Total


32,152



100.0



9,515



100.0



41,667



100.0Weighted average indexed loan-to-value(1)(2):Stock of residential mortgages at year end






99.8







118.6







104.1New residential mortgages issued during year






73.7







61.6







72.8Impaired residential mortgages






114.6







134.8







123.9 54% of the total owner-occupier and 66% of the total buy-to-let mortgages were in negative equity at 31 December 2012 (31 December
2011: 53% and 64% respectively). The weighted average indexed loan-to-value ratio for the total portfolio was 107.4% at 31 December 2012 (31 December 2011: 104.1%) whilst the weighted average indexed loan-to-value ratio for the impaired
portfolio was 131.6% (31 December 2011: 123.9%), reflecting the decrease in property prices in the period. The weighted average indexed loan-to-value ratio of new mortgages issued during 2012 was 76.5% (31 December 2011: 72.8%). (1)Weighted average indexed loan-to-values are the individual indexed loan-to-value
calculations weighted by the mortgage balance against each property. (2)Arising
from changes made to the method of calculating the weighted average indexed loan-to-value ratios in 2012, comparative figures for 2011 have been adjusted.








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3.1 Credit risk  Credit profile of the loan portfolio(continued) Loan-to-value ratios of residential mortgages(index linked)that were neither past due nor impaired The following table profiles the Republic of Ireland residential mortgage portfolio that was neither past due nor impaired by the indexed loan-to-value ratios at
31 December 2012 and 31 December 2011:  2012*Owner-occupier


Buy-to-let


TotalRepublic of Ireland


m


%



m


%



m


%Less than 50%


3,401



13.3



412



9.8



3,813



12.850% to 70%


3,173



12.4



482



11.4



3,655



12.371% to 80%


1,890



7.4



310



7.3



2,200



7.481% to 90%


2,182



8.6



341



8.1



2,523



8.591% to 100%


2,091



8.2



378



8.9



2,469



8.3101% to 120%


4,520



17.7



691



16.3



5,211



17.5121% to 150%


4,794



18.8



828



19.6



5,622



18.9Greater than 150%


3,464



13.6



786



18.6



4,250



14.3Total


25,515



100.0



4,228



100.0



29,743



100.02011Owner-occupier


Buy-to-let


TotalRepublic of Ireland


m


%



m


%



m


%Less than 50%


3,792



14.0



552



9.0



4,344



13.050% to 70%


3,460



12.6



677



11.0



4,137



12.371% to 80%


1,924



7.0



419



6.8



2,343



7.081% to 90%


2,065



7.5



479



7.8



2,544



7.691% to 100%


2,253



8.2



509



8.3



2,762



8.2101% to 120%


5,226



19.1



1,023



16.7



6,249



18.7121% to 150%


5,235



19.1



1,337



21.8



6,572



19.6Greater than 150%


3,415



12.5



1,139



18.6



4,554



13.6Total


27,370



100.0



6,135



100.0



33,505



100.0 Of the residential mortgages that were neither past due nor impaired at 31 December 2012, 50% of owner occupier and 55% of buy-to-let
mortgages were in negative equity (31 December 2011: 51% and 57% respectively). In terms of the total portfolio that was neither past due nor impaired, 51% was in negative equity at 31 December 2012 (31 December 2011: 52%).








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3.1 Credit risk  Credit profile of the loan portfolio Loan-to-value ratios of residential mortgages(index linked)that were greater than 90 days past due and/or impaired The following table profiles the Republic of Ireland residential mortgage portfolio that was greater than 90 days past due and/or impaired by the indexed loan-to-value
ratios at 31 December 2012 and 31 December 2011:  2012*Owner-occupier


Buy-to-let


Total


Totalresidential
mortgage
portfolioRepublic of Ireland

 m


%


 m


%


 m


%


 m


%Less than 50%


252



5.4



93



2.7



345



4.2



4,306



10.950% to 70%


301



6.4



141



4.0



442



5.5



4,255



10.871% to 80%


208



4.4



105



3.0



313



3.8



2,621



6.681% to 90%


237



5.0



128



3.7



365



4.5



3,006



7.691% to 100%


299



6.4



193



5.6



492



6.0



3,073



7.8101% to 120%


684



14.6



523



15.1



1,207



14.8



6,686



16.9121% to 150%


1,153



24.5



851



24.6



2,004



24.5



8,006



20.2Greater than 150%


1,567



33.3



1,430



41.3



2,997



36.7



7,578



19.2Total


4,701



100.0



3,464



100.0



8,165



100.0



39,531



100.02011Owner-occupier


Buy-to-let


Total


Totalresidential
mortgage
portfolioRepublic of Ireland

 m


%


 m


%


 m


%


 m


%Less than 50%


223



6.4



112



3.7



335



5.2



4,814



11.650% to 70%


253



7.3



164



5.6



417



6.4



4,714



11.371% to 80%


170



4.9



96



3.2



266



4.1



2,707



6.581% to 90%


199



5.7



134



4.5



333



5.2



2,985



7.291% to 100%


231



6.7



198



6.6



429



6.6



3,327



8.0101% to 120%


548



15.8



488



16.4



1,036



16.1



7,613



18.3121% to 150%


891



25.6



812



27.2



1,703



26.4



8,684



20.8Greater than 150%


957



27.6



977



32.8



1,934



30.0



6,823



16.3Total


3,472



100.0



2,981



100.0



6,453



100.0



41,667



100.0 Of the residential mortgages that were greater than 90 days past due and/or impaired at 31 December 2012, 72% of the owner-occupier and
81% of the buy-to-let mortgages were in negative equity (31 December 2011: 69% and 76% respectively). In terms of the total portfolio that was greater than 90 days past due and/or impaired, 76% was in negative equity at 31 December 2012 (31 December
2011: 72%).








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| |  | *Forms an integral part of the audited financial statements |  |   
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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Credit quality profile of residential mortgages The following table profiles
the asset quality of the Republic of Ireland residential mortgage portfolio as at 31 December 2012 and 31 December 2011: 2012*










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 mNeither past due nor impaired


25,515



4,228



29,743





27,370



6,135



33,505Past due but not impaired


1,546



386



1,932





1,515



609



2,124Impaired - provisions held


4,523



3,333



7,856





3,267



2,771



6,038Gross residential mortgages


31,584



7,947



39,531





32,152



9,515



41,667Provisions for impairment


(1,546
)


(1,477
)


(3,023)





(1,098
)


(1,361
)


(2,459
)30,038



6,470



36,508





31,054



8,154



39,208 Residential mortgages which were past due but not impaired The following table profiles the Republic of Ireland residential mortgage portfolio that was past due but not impaired at 31 December 2012 and 31 December 2011: 2012*










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 m1 - 30 days


845



137



982





830



184



1,01431 - 60 days


334



77



411





326



134



46061 - 90 days


188



42



230





154



81



23591 - 180 days


120



65



185





147



117



264181 - 365 days


42



38



80





50



65



115Over 365 days


17



27



44





8



28



36Total past due but not impaired


1,546



386



1,932





1,515



609



2,124Total gross residential mortgages


31,584



7,947



39,531





32,152



9,515



41,667  1.9 billion or 5% of the Republic of
Ireland residential mortgage portfolio was past due but not impaired at 31 December 2012 (2011:  2.1 billion or 5%), of which  1.0 billion or 51% was 30
days or less past due but not impaired (2011:  1.0 billion or 48%). Loans past due more than 90 days but not impaired amounted to  0.3 billion (16% of the
portfolio), and have decreased from  0.4 billion (20% of the portfolio) at 31 December 2011. Residential
mortgages which were impaired The following table profiles the Republic of Ireland residential mortgage portfolio that was impaired at 31 December 2012 and
31 December 2011: 2012










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 mNot past due


782



1,025



1,807





371



855



1,2261 - 30 days


193



170



363





84



139



22331 - 60 days


158



153



311





180



195



37561 - 90 days


145



102



247





210



137



34791 - 180 days


558



292



850





582



320



902181 - 365 days


815



447



1,262





777



408



1,185Over 365 days


1,872



1,144



3,016





1,063



717



1,780Total impaired


4,523



3,333



7,856





3,267



2,771



6,038Total gross residential mortgages


31,584



7,947



39,531





32,152



9,515



41,667 Residential mortgages are assessed for impairment if they are past due, typically, for more than ninety days or if the borrower exhibits
an inability to meet its obligations to the Group based on objective evidence of loss events (impairment triggers). Loans are deemed impaired where the carrying value of the asset is shown to be in excess of the present value of future
cashflows, and an appropriate provision is raised. Where loans are not deemed to be impaired, they are collectively assessed as part of the IBNR provision calculation. Of the Republic of Ireland residential mortgage portfolio that was impaired at 31 December 2012,  1.8 billion or 23% was not past due (2011:  1.2 billion or 20%). A further 0.9 billion or 12% of the impaired
portfolio was less than 90 days past due at 31 December 2012 (2011:  0.9 billion or 16%).








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3.1 Credit risk  Credit profile of the loan portfolio Forbearance  residential mortgages The Group has a number of forbearance
strategies in operation to assist borrowers who have difficulty in meeting repayment commitments. These are described on page 74. The following tables analyse by
type of forbearance, (i) owner-occupier, (ii) buy-to-let and (iii) total residential mortgages that were subject to forbearance measures in the Republic of Ireland at 31 December 2012 and 31 December 2011:  2012*Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland owner-occupier




 m







 m







 mInterest only


10,372



1,820





4,230



848





6,142



972Reduced payment (greater than interest only)


1,852



387





877



229





975



158Payment moratorium


838



127





350



58





488



69Arrears capitalisation


3,139



571





2,071



408





1,068



163Term extension


5,735



598





686



63





5,049



535Other


312



41





146



20





166



21Total forbearance


22,248



3,544





8,360



1,626





13,888



1,918  2012*Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland buy-to-let




 m







 m







 mInterest only


5,346



1,386





3,162



931





2,184



455Reduced payment (greater than interest only)


957



224





518



129





439



95Payment moratorium


79



19





47



12





32



7Arrears capitalisation


1,800



488





1,484



427





316



61Term extension


718



106





91



17





627



89Other


25



10





14



8





11



2Total forbearance


8,925



2,233





5,316



1,524





3,609



709  2012*Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland  Total




 m







 m







 mInterest only


15,718



3,206





7,392



1,779





8,326



1,427Reduced payment (greater than interest only)


2,809



611





1,395



358





1,414



253Payment moratorium


917



146





397



70





520



76Arrears capitalisation


4,939



1,059





3,555



835





1,384



224Term extension


6,453



704





777



80





5,676



624Other


337



51





160



28





177



23Total forbearance


31,173



5,777





13,676



3,150





17,497



2,627








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| |  | *Forms an integral part of the audited financial statements |  |    
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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Forbearance  residential mortgages(continued)  2011Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland owner-occupier




 m







 m







 mInterest only


13,681



2,548





3,436



675





10,245



1,873Reduced payment (greater than interest only)


1,014



184





251



58





763



126Payment moratorium


1,438



254





470



92





968



162Arrears capitalisation


1,512



274





649



135





863



139Term extension


4,964



524





447



41





4,517



483Other


2



1















2



1Total forbearance


22,611



3,785





5,253



1,001





17,358



2,784  2011Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland buy-to-let




 m







 m







 mInterest only


7,401



1,866





2,565



816





4,836



1,050Reduced payment (greater than interest only)


423



99





107



29





316



70Payment moratorium


136



40





78



28





58



12Arrears capitalisation


823



232





558



163





265



69Term extension


872



132





89



15





783



117Other


























Total forbearance


9,655



2,369





3,397



1,051





6,258



1,318  2011Total




Loans > 90 days




Loans neither > 90in arrears and/or




days in arrearsimpaired




nor impairedNumber


Balance




Number


Balance




Number


BalanceRepublic of Ireland  Total




 m







 m







 mInterest only


21,082



4,414





6,001



1,491





15,081



2,923Reduced payment (greater than interest only)


1,437



283





358



87





1,079



196Payment moratorium


1,574



294





548



120





1,026



174Arrears capitalisation


2,335



506





1,207



298





1,128



208Term extension


5,836



656





536



56





5,300



600Other


2



1















2



1Total forbearance


32,266



6,154





8,650



2,052





23,616



4,102 The Group has developed a Mortgage Arrears Resolution Strategy (MARS) for dealing with mortgage customers in difficulty or
likely to be in difficulty. MARS builds on and formalises the Groups Mortgage Arrears Resolution Process, under which short-term mortgage forbearance solutions were provided to customers in financial difficulty for the last number of years.
MARS includes new longer-term forbearance solutions which were devised in 2012 to assist existing Republic of Ireland primary residential mortgage customers in difficulty. Further details on MARS are set out on page 74. Of the total residential mortgage portfolio in the Republic of Ireland of 
39.5 billion (31 December 2011:  41.7 billion),  5.8 billion (15%) was subject to forbearance measures at 31 December 2012, compared to  6.2 billion (15%) at 31 December 2011. The majority (56%) of the loans that were subject to forbearance measures at 31 December 2012 were granted a period of interest only payments (31 December 2011: 72%).  3.2 billion (55%) of the loans under forbearance were greater than 90 days past due or impaired at 31 December 2012, compared to  2.1 billion (33%) at 31 December
2011.








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3.1 Credit risk  Credit profile of the loan portfolio Forbearance  residential mortgages(continued) The
following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures and which was past due but not impaired at 31 December 2012 and 31 December 2011:  2012*










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 m1 - 30 days


176



36



212





209



58



26731 - 60 days


96



20



116





121



53



17461 - 90 days


58



15



73





74



33



10791 - 180 days


53



25



78





94



38



132181 - 365 days


23



12



35





37



22



59Over 365 days


9



13



22





5



10



15Total past due but not impaired


415



121



536





540



214



754  0.5 billion or 9% of the Republic of
Ireland residential mortgage portfolio that was subject to forbearance measures at 31 December 2012 was past due but not impaired (31 December 2011:  0.8 billion or 12%). Of the portion of the
portfolio that was past due but not impaired,  0.2 billion or 40% was 30 days or less past due but not impaired (31 December 2011:  0.3 billion
or 35%).  0.1 billion (25%) of the portfolio was more than 90 days past due, compared to  0.2 billion (27%) at 31 December 2011. The following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures and which was impaired at 31 December
2012 and 31 December 2011:  2012










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 mNot past due


475



575



1,050





183



412



5951 - 30 days


117



97



214





36



59



9531 - 60 days


88



90



178





62



103



16561 - 90 days


61



57



118





65



45



11091 - 180 days


209



154



363





178



120



298181 - 365 days


249



217



466





204



137



341Over 365 days


342



284



626





137



105



242Total impaired


1,541



1,474



3,015





865



981



1,846 All loans that are assessed for a forbearance solution are tested for impairment either individually or collectively, irrespective of
whether such loans are past due or not. Where the loans are deemed not to be impaired, they are collectively assessed as part of the IBNR provision calculation. Of
the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures and impaired at 31 December 2012,  1.1 billion or 35%
was not past due at 31 December 2012 (31 December 2011:  0.6 billion or 32%). A further  0.5 billion or 17% of the impaired portfolio was less than
90 days past due at 31 December 2012 (31 December 2011:  0.4 billion or 20%).








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| |  | *Forms an integral part of the audited financial statements |  |    
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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Forbearance  residential mortgages(continued) The following table profiles the Republic of Ireland residential mortgage portfolio that was subject to forbearance measures by the indexed loan-to-value ratios at
31 December 2012 and 31 December 2011:  2012*










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierRepublic of Ireland

 m


 m


 m




 m


 m


 mLess than 50%


313



74



387





376



95



47150%  70%


341



111



452





432



152



58471% - 80%


231



86



317





261



96



35781% - 90%


245



96



341





268



126



39491%- 100%


274



143



417





292



164



456101% - 120%


568



353



921





657



394



1,051121% - 150%


796



510



1,306





824



602



1,426Greater than 150%


776



860



1,636





675



740



1,415Total forbearance


3,544



2,233



5,777





3,785



2,369



6,154 Of the residential mortgage portfolio in the Republic of Ireland that was subject to forbearance measures at 31 December 2012, 60% of
owner-occupier and 77% of buy-to-let mortgages were in negative equity (31 December 2011: 57% and 73% respectively), whilst 67% of the total portfolio subject to forbearance measures was in negative equity at 31 December 2012 (31 December 2011:
63%). Republic of Ireland residential mortgages  repossessions(1) The number (stock) of repossessions as at 31 December 2012 and 31 December 2011 is set out below:  2012*







2011Stock of


Balance




Stock of


Balancerepossessions


outstanding




repossessions


outstanding m







 mOwner-occupier


80



23





91



29Buy-to-let


53



15





39



11Total


133



38





130



40 (1)The number of repossessed residential properties
presented relates to those held as security for residential mortgages only. The increase in the stock of repossessed properties in 2012 relates to 64 properties
repossessed in the Republic of Ireland offset by disposals. The majority of repossessions were by way of voluntary surrender. Republic of Ireland residential
mortgages - repossessions disposed of The following table analyses disposed of repossessed properties for the years ended 31 December 2012 and
31 December 2011:  2012*Number of


Outstanding


Gross sales


Costs


Loss on


Averagedisposals



balance at



proceeds



to



sale
(1)


loan-to-repossession


on


sell





value atdate


disposal








sale price % m


 m


 m


 mOwner-occupier


44



13



5



1



9



244Buy-to-let


17



8



3







5



324Total


61



21



8



1



14



2692011Number of


Outstanding


Gross sales


Costs


Loss on


Averagedisposals



balance at



proceeds



to



sale
(1)


loan-to-repossession


on


sell





value atdate


disposal








sale price % m


 m


 m


 mOwner-occupier


5



2



1







1



214Buy-to-let


10



3



1







2



238Total


15



5



2







3



230 (1)Before specific impairment provisions. During the year ended 31 December 2012, 61 residential properties were disposed of in the Republic of Ireland, resulting in a total loss on sale of  14 million compared to 2011 when 15 residential properties were disposed of, resulting in a total loss of  3
million.








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3.1 Credit risk  Credit profile of the loan portfolio AIB UK residential mortgages The following table analyses the AIB UK
residential mortgage portfolio showing impairment provisions for the years ended 31 December 2012 and 31 December 2011:  2012*










2011Owner-


Buy-to-let


Total




Owner-


Buy-to-let


Totaloccupier










occupierStatement of financial position

 m


 m


 m




 m


 m


 mTotal gross residential mortgages


2,583



407



2,990





2,823



434



3,257In arrears (>30 days past due)(1)


319



65



384





252



33



285In arrears (>90 days past due)(1)


270



56



326





211



27



238Of which impaired


230



44



274





169



24



193Statement of financial position specific provisions


88



22



110





55



12



67Statement of financial position IBNR provisions


61



12



73





88



12



100Provision cover percentage


%



%



%





%



%



%Specific provisions/impaired loans


38.3



50.0



40.1





32.9



46.1



34.7Income statement


 m



 m



 m





 m



 m



 mIncome statement specific provisions


36



12



48





33



6



39Income statement IBNR provisions


(28
)


(2
)


(30)





53



7



60Total impairment provisions


8



10



18





86



13



99 (1)Includes all impaired loans whether past due or
not. Residential mortgages in AIB UK were  3.0 billion at
31 December 2012 and comprised owner-occupier mortgages of  2.6 billion and buy-to-let mortgages of  0.4 billion (31 December 2011:  3.2 billion comprising owner-occupier mortgages of  2.8 billion and buy-to-let mortgages of  0.4 billion). The level of loans greater than 90 days in arrears and/or impaired increased to 10.9% at 31 December 2012 from 7.4% at 31 December 2011, as borrowers
repayment capacity continues to be impacted by the current economic climate, particularly in Northern Ireland. Statement of financial position specific provisions of
 110 million were held at 31 December 2012 and provided cover of 40% (31 December 2011: 
67 million providing cover of 35%). IBNR statement of financial position provisions of  73 million were held at 31 December 2012, down from 
100 million at 31 December 2011, and reflects managements view of incurred loss in the performing book. The total income statement provision charge
at 31 December 2012 was  18 million, comprising a specific provision charge of  48 million and
a release of IBNR of  30 million, reflecting the reversal of IBNR provisions raised in previous periods to specific provisions, particularly, in relation to low-start mortgages in Northern Ireland.
This compares to a total income statement charge of  99 million for 2011, comprising a specific charge of  39 million and an IBNR charge of  60 million.








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| |  | *Forms an integral part of the audited financial statements |  |    
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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio AIB UK residential mortgages by year of origination The following table
profiles the AIB UK total residential mortgage portfolio and impaired residential mortgage portfolio by year of origination at 31 December 2012 and 31 December 2011:  2012*















2011Total

Impaired

Total




ImpairedNumber


Balance




Number


Balance




Number


Balance




Number


BalanceAIB UK




 m







 m







 m







 m1996 and before


335



17





2









418



20





1



1997


62



2















87



3









1998


93



5





1









113



6





1



1999


242



12















293



15









2000


230



15















276



18









2001


3,285



104





126



4





3,656



121





114



52002


1,317



84





47



3





1,466



97





42



22003


1,955



145





118



13





2,108



160





104



102004


2,421



213





135



14





2,558



236





119



122005


3,218



333





268



32





3,400



369





214



252006


4,891



600





443



73





5,174



658





311



512007


5,515



820





523



102





5,815



884





339



662008


2,627



373





135



23





2,771



400





100



182009


1,205



136





32



8





1,315



160





18



22010


605



65





8



1





656



76





6



2011


324



32





3



1





337



34





1



22012


288



34





























Total


28,613



2,990





1,841



274





30,443



3,257





1,370



193 The table shows that 20% of the residential mortgage portfolio originated before 2005, with such loans representing 12% of the impaired
balances at 31 December 2012 (31 December 2011: 21% of the residential mortgage portfolio originated before 2005, with such loans representing 15% of the impaired balances). A further 71% of the residential mortgage portfolio originated between
2005 and 2008, with such loans representing 84% of impaired balances (31 December 2011: 71% of the residential mortgage portfolio originated between 2005 and 2008, with such loans representing 83% of impaired balances). The remainder of the
portfolio (9%) originated since 2008 and represent 4% of the impaired balances at 31 December 2012 (31 December 2011: 8% originated since 2008 with such loans representing 2% of the impaired balances).








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|    |  | *Forms an integral part of the audited financial statements
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3.1 Credit risk  Credit profile of the loan portfolio The property values used in the completion of the following loan-to-value tables are determined with reference to the original or most recent valuation, indexed to the
Nationwide House Price Index (HPI) in the UK. This index for Quarter 4 2012 reported that house prices across the UK were 11.5% lower than their peak in Quarter 3 2007 and reported an annual fall of 1.1% during 2012. Comparative figures,
as reported in the Nationwide HPI in Quarter 4 2011, was a decline from peak of 10.5% and an annual increase of 1.1%. In Northern Ireland (which represents
70% of the UK residential mortgage portfolio), the Nationwide HPI reported in Quarter 4 2012 that house prices decreased by 54.3% from their peak in Quarter 3 2007 (2011: 50.2%), whilst during 2012 house prices decreased by 8.2% (2011: 8.9%). Actual and weighted average indexed loan-to-value ratios of AIB UK residential mortgages The following table profiles the AIB UK residential mortgage portfolio by the indexed loan-to-value ratios and the weighted average indexed loan-to-value ratios at
31 December 2012 and 31 December 2011:  2012*Owner-occupier




Buy-to-let




TotalAIB UK

 m



%




 m


%




 m



%Less than 50%


442



17.1





54



13.3





496



16.650% to 70%


406



15.7





59



14.7





465



15.671% to 80%


258



10.0





25



6.1





283



9.581% to 90%


261



10.1





29



7.1





290



9.791% to 100%


249



9.6





25



6.1





274



9.2101% to 120%


293



11.4





34



8.3





327



10.9121% to 150%


304



11.8





62



15.2





366



12.2Greater than 150%


370



14.3





119



29.2





489



16.3Total


2,583



100.0





407



100.0





2,990



100.0Weighted average indexed loan-to-value(1):Stock of residential mortgages at year end






96.9









111.7









98.9New residential mortgages issued during year






71.1



















71.1Impaired residential mortgages






119.6









145.4









123.72011Owner-occupier




Buy-to-let




TotalAIB UK

 m


%




 m


%




 m


%Less than 50%


543



19.2





58



13.3





601



18.550% to 70%


525



18.6





77



17.7





602



18.571% to 80%


315



11.2





31



7.2





346



10.681% to 90%


301



10.7





37



8.7





338



10.491% to 100%


276



9.8





28



6.3





304



9.3101% to 120%


301



10.6





39



9.0





340



10.4121% to 150%


329



11.6





94



21.7





423



13.0Greater than 150%


233



8.3





70



16.1





303



9.3Total


2,823



100.0





434



100.0





3,257



100.0Weighted average indexed loan-to-value(1):Stock of residential mortgages at year end






88.2









101.1









89.9New residential mortgages issued during year






70.0









77.0









70.4Impaired residential mortgages






105.9









121.8









107.9 (1)Weighted average indexed loan-to-values are the
individual indexed loan-to-value calculations weighted by the mortgage balance against each property. 37% of owner-occupier and 53% of buy-to-let mortgages were in
negative equity at 31 December 2012 (31 December 2011: 31% and 47% respectively). In terms of the total portfolio, 40% was in negative equity at 31 December 2012 (31 December 2011: 33%). The weighted average indexed loan-to-value
ratio for the total portfolio was 98.9% at 31 December 2012 (31 December 2011: 89.9%) whilst the weighted average indexed loan-to-value ratio for the impaired portfolio was 123.7% (31 December 2011: 107.9%), reflecting the decrease in
property prices in Northern Ireland in the period. The weighted average indexed loan-to-value ratio of new mortgages issued during 2012 was 71.1% (31 December 2011: 70.4%).








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 107



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##### Table of Contents

|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Loan-to-value ratios of AIB UK residential mortgages(index linked)that were neither past due nor impaired The following table profiles the AIB UK residential mortgage portfolio that was neither past due nor impaired by the indexed loan-to-value ratios at 31 December 2012
and 31 December 2011:  2012*Owner-occupier




Buy-to-let




TotalAIB UK

 
m


%




 m



%




 m



%Less than 50%


417



18.7





52



15.3





469



18.250% to 70%


373



16.7





55



16.1





428



16.671% to 80%


229



10.2





22



6.4





251



9.781% to 90%


226



10.1





21



6.4





247



9.691% to 100%


192



8.6





21



6.1





213



8.3101% to 120%


258



11.5





30



8.8





288



11.2121% to 150%


257



11.5





51



15.1





308



12.0Greater than 150%


283



12.7





88



25.8





371



14.4Total


2,235



100.0





340



100.0





2,575



100.0  2011Owner-occupier




Buy-to-let




TotalAIB UK

 
m


%




 m


%




 m


%Less than 50%


519



20.5





56



14.4





575



19.750% to 70%


483



19.0





72



18.6





555



19.071% to 80%


283



11.2





29



7.5





312



10.781% to 90%


265



10.5





29



7.5





294



10.091% to 100%


238



9.4





25



6.3





263



9.0101% to 120%


267



10.5





35



9.1





302



10.3121% to 150%


281



11.1





83



21.4





364



12.5Greater than 150%


197



7.8





59



15.2





256



8.8Total


2,533



100.0





388



100.0





2,921



100.0 Of the residential mortgages that were neither past due nor impaired at 31 December 2012, 36% of owner-occupier and 50% of buy-to-let
mortgages were in negative equity (31 December 2011: 29% and 46% respectively). In total, 37% of such mortgages were in negative equity at 31 December 2012 (31 December 2011: 32%) driven by continued property price declines in Northern Ireland
in 2012.








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|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|108 |  |                                                            



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##### Table of Contents

| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






3.1 Credit risk  Credit profile of the loan portfolio Loan-to-value ratios of AIB UK residential mortgage portfolio(index linked)that were greater than 90 days past due and/or impaired The following table profiles the AIB UK residential mortgage portfolio that was greater than 90 days past due and/or impaired by the indexed loan-to-value ratios at
31 December 2012 and 31 December 2011:  2012*Owner-occupier




Buy-to-let




Total




Totalresidentialmortgage
portfolioAIB UK

 m


%




 m


%




 m


%




 m



%Less than 50%


15



5.4





1



1.9





16



4.9





496



16.650% to 70%


22



8.2





3



5.8





25



7.7





465



15.671% to 80%


26



9.4





3



4.6





29



8.6





283



9.581% to 90%


27



10.1





7



12.4





34



10.4





290



9.791% to 100%


40



14.9





3



6.4





43



13.5





274



9.2101% to 120%


29



10.7





4



6.5





33



9.8





327



10.9121% to 150%


39



14.5





8



14.5





47



14.4





366



12.2Greater than 150%


72



26.8





27



47.9





99



30.7





489



16.3Total


270



100.0





56



100.0





326



100.0





2,990



100.02011Owner-occupier




Buy-to-let




Total




Totalresidentialmortgage
portfolioAIB UK

 m


%




 m


%




 m


%




 m


%Less than 50%


14



7.1















14



6.3





601



18.550% to 70%


27



12.8





4



14.8





31



13.0





602



18.571% to 80%


26



12.3





1



3.7





27



11.3





346



10.681% to 90%


25



11.9





3



11.1





28



11.8





338



10.491% to 100%


26



12.3





2



7.4





28



11.8





304



9.3101% to 120%


24



11.4





2



7.4





26



10.9





340



10.4121% to 150%


37



17.5





7



26.0





44



18.5





423



13.0Greater than 150%


32



14.7





8



29.6





40



16.4





303



9.3Total


211



100.0





27



100.0





238



100.0





3,257



100.0 Of the residential mortgages that were greater than 90 days past due and/or impaired at 31 December 2012, 52% of owner-occupier and
68% of buy-to-let mortgages were in negative equity (31 December 2011: 44% and 63% respectively). In terms of the total portfolio that was greater than 90 days past due and/or impaired, 55% was in negative equity at 31 December 2012 (31
December 2011: 46%), driven by continued property price declines in Northern Ireland during the year.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 109



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##### Table of Contents

|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Credit profile of the loan portfolio Credit quality profile of AIB UK residential mortgages The following table
profiles the asset quality of AIB UK residential mortgage portfolio as at 31 December 2012 and 31 December 2011:  2012*




2011Owner-
occupier  m


Buy-to-let


Total




Owner-
occupier  m


Buy-to-let


TotalAIB UK


 m


 m





 m


 mNeither past due nor impaired


2,235



340



2,575





2,533



388



2,921Past due but not impaired


118



23



141





121



22



143Impaired - provisions held


230



44



274





169



24



193Gross residential mortgages


2,583



407



2,990





2,823



434



3,257Provisions for impairment


(149)



(34)



(183)





(143)



(24)



(167
)2,434



373



2,807





2,680



410



3,090 AIB UK residential mortgages which were past due but not impaired The following table profiles the AIB UK residential mortgage portfolio that was past due but not impaired at 31 December 2012 and 31 December 2011:  2012*




2011Owner-
occupier  m


Buy-to-let


Total




Owner-
occupier  m


Buy-to-let


TotalAIB UK


 m


 m





 m


 m1 - 30 days


29



2



31





38



13



5131 - 60 days


35



5



40





25



4



2961 - 90 days


14



4



18





16



2



1891 - 180 days


12



11



23





27



3



30181 - 365 days


10



1



11





11







11Over 365 days


18







18





4







4Total


118



23



141





121



22



143  141 million or 5% of the AIB UK
residential mortgage portfolio was past due but not impaired at 31 December 2012 (31 December 2011:  143 million or 4%), of which 
31 million or 22% was 30 days or less past due but not impaired (31 December 2011:  51 million or 36%).  52 million (37%) of the portfolio
was more than 90 days past due, compared to  45 million (31%) at 31 December 2011. AIB UK residential
mortgages which were impaired The following table profiles the AIB UK residential mortgage portfolio that was impaired at 31 December 2012 and
31 December 2011:  2012


2011Owner-
occupier  m


Buy-to-let


Total




Owner-
occupier  m


Buy-to-let


TotalAIB UK


 m


 m





 m


 mNot in arrears


15



2



17





8



1



91 - 30 days


3



1



4





5



1



631 - 60 days


5



1



6





7



1



861 - 90 days


6



2



8





1







191 - 180 days


27



7



34





33



3



36181 - 365 days


52



12



64





44



6



50Over 365 days


122



19



141





71



12



83Total impaired


230



44



274





169



24



193Total gross residential mortgages


2,583



407



2,990





2,823



434



3,257 Residential mortgages are assessed for impairment if they are past due, typically for more than ninety days, or if the borrower exhibits
an inability to meet its obligations to the Group based on objective evidence of loss events (impairment triggers). Loans are deemed impaired where the carrying value of the asset is shown to be in excess of the present value of future
cashflows and an appropriate provision is raised. Where loans are not deemed to be impaired, they are collectively assessed as part of the IBNR provision calculation. Of the AIB UK residential mortgage portfolio that was impaired at 31 December 2012,
 17 million or 6% was not past due (31 December 2011:  9 million or 5%). A further  18 million or 7% of the impaired portfolio was less than 90 days past due at 31 December 2012 (31 December 2011:  15 million or 8%).








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|110 |  |                                                            



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##### Table of Contents

| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






3.1 Credit risk  Credit profile of the loan portfolio AIB UK residential mortgages  repossessions The number (stock) of
repossessions as at 31 December 2012 and 31 December 2011 is set out below:  2012*







2011Stock of


Balance




Stock of


Balancerepossessions


outstanding




repossessions


outstanding m







 mOwner-occupier


143



33





59



14Buy-to-let


71



15





33



7Total


214



48





92



21 During the year ended 31 December 2012, 98 properties were disposed of in AIB UK, resulting in a total loss on sale of  10.3 million before specific impairment provisions. This compares to 31 December 2011 when 68 properties were disposed of resulting in a total loss on
sale of  6.6 million before specific impairment provisions. A total of 220 properties were repossessed in AIB UK in 2012, the majority of which resulted from the enforcement of security and compares
to 2011 when 106 properties were repossessed.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 111



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##### Table of Contents

|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  credit profile of the loan portfolio Loans and receivables to customers  Other personal lending The following table analyses other personal lending by market segment showing asset quality and impairment provisions for the years ended 31 December 2012 and
31 December 2011:  2012
TotalCore






Non-CorePBB




CICB




AIB UK




Total Core






PBB




CICB




AIB UK




TotalNon-Core m




 m




 m




 m






 m




 m




 m




 m






 mSatisfactory


1,865





290





284





2,439







1





64





2





67







2,506Watch


148





109





36





293













23





7





30







323Vulnerable


221





110





38





369







1





53





15





69







438Impaired


623





479





38





1,140







1





244





46





291







1,431Total criticised loans


992





698





112





1,802







2





320





68





390







2,192Total gross loans and receivables


2,857





988





396





4,241







3





384





70





457







4,698Total loans percentage


%





%





%





%







%





%





%





%







%Criticised loans/total loans


35





71





28





42







52





83





97





85







47Impaired loans/total loans


22





48





10





27







28





64





66





64







30Impairment provisions - statement of financial position*Specific


535





320





27





882













152





30





182







1,064IBNR


31





24





11





66













8





1





9







75Total impairment provisions


566





344





38





948













160





31





191







1,139Provision cover percentage


%





%





%





%







%





%





%





%







%Specific provisions/impaired loans


86





67





74





77













62





64





62







74Total provisions/impaired loans


91





72





100





83













66





67





66







80Total provisions/total loans


20





35





10





22













42





44





42







24Impairment charge/average loans


1.24





16.13





4.86





4.16







4.92





4.96





3.55





4.87







4.37








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|112 |  |                                                            



---

##### Table of Contents

| |  |                                            |  |     
| |  | ------------------------------------------ |  | ----
| |  | Risk management  3. Individual risk types |  | LOGO






3.1 Credit risk  Credit profile of the loan portfolio Loans and receivables to customers  Other personal lending(continued)  2011Core

Non-Core






TotalPBB 
 m




CICB 
 m




AIB UK 
 m




Total Core

 m






PBB 
 m




CICB 
 m




AIB UK 
 m




Total    Non-Core
 m






 mSatisfactory


1,775





72





345





2,192







397





449





7





853







3,045Watch


115





13





36





164







103





162





6





271







435Vulnerable


110





14





47





171







130





175





30





335







506Impaired


342





71





38





451







208





632





43





883







1,334Total criticised loans


567





98





121





786







441





969





79





1,489







2,275Total gross loans and receivables


2,342





170





466





2,978







838





1,418





86





2,342







5,320Total loans percentage


%





%





%





%







%





%





%





%







%Criticised loans/total loans


24





58





26





26







53





68





92





64







43Impaired loans/total loans


15





42





8





15







25





45





50





38







25Impairment provisions  statement of financial positionSpecific


289





52





28





369







153





360





21





534







903IBNR


95





-





4





99







57





2





2





61







160Total impairment provisions


384





52





32





468







210





362





23





595







1,063Provision cover percentage


%





%





%





%







%





%





%





%







%Specific provisions/impaired loans


84





73





76





82







73





57





49





60







68Total provisions/impaired loans


112





73





86





104







101





57





54





67







80Total provisions/total loans


16





30





7





16







25





26





26





25







20Impairment charge/average loans






















































8.45








113



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##### Table of Contents

|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management - 3. Individual risk types |  | 






3.1 Credit risk  credit profile of the loan portfolio Loans and receivables to customers  Other personal lending(continued) The other personal lending portfolio at  4.7 billion has reduced by  0.6 billion in the period and comprises  3.7 billion in loans and overdrafts and  1.0 billion in credit card
facilities. There has been a marked shift in the profile of the portfolio in terms of core/non core assets as a result of the reclassification of non-core assets during the year. This is particularly evident in the PBB market segment where
practically all loans in this sector are now included in core assets. Despite evidence of some improvement in retail sales and consumer spending in Ireland in the
second half of 2012, with some stabilisation in unemployment and house prices, the reduction in the overall other personal lending book reflects the continued lack of demand for personal credit, as households focus on reducing debt, where possible.  2.2 billion or 47% of the portfolio is criticised of which impaired
loans amount to  1.4 billion (31 December 2011:  2.3 billion or 43% and  1.3 billion). The Group has statement of financial position specific provisions of  1.1
billion providing cover on impaired loans of 74% (31 December 2011:  0.9 billion or 68%) and a further  0.1 billion in IBNR provisions representing 2.30% of
performing loans (31 December 2011:  0.2 billion or 4.01%). The income statement provision charge for the year was  219 million or 4.37% of average customer loans compared with  478 million or 8.45% in the year to
31 December 2011. While the provision charge has reduced significantly since 2011, borrowers in this sector were impacted by high unemployment levels and reduced incomes as a result of austerity measures.








114



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##### Table of Contents

| |  |                                                                                                                                                                                                                                                                                                                                                               |  |     
| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
| |  | Risk management  3. Individual risk types
3.1 Credit risk  credit profile of the loan portfolio 
Loans and receivables to customers  Property and construction The
following table analyses property and construction lending by market segment showing asset quality and impairment provisions for the years ended 31 December 2012 and 31 December 2011: |  | LOGO






2012Core




Non-Core




TotalPBB 
 m




CICB 
 m




AIB UK 
 m




EBS 
 m






Total  Core
 m




PBB 
 m




CICB 
 m




AIB UK 
 m




EBS 
 m




Total  Non-Core  
m




 mInvestmentCommercial investment


592





6,322





1,290













8,204











2,818





759





278





3,855





12,059Residential investment


261





753





490













1,504





1





880





499











1,380





2,884853





7,075





1,780













9,708





1





3,698





1,258





278





5,235





14,943Land and developmentCommercial development


121





363





45













529





2





788





130











920





1,449Residential development


244





697





422













1,363





1





2,407





1,222











3,630





4,993365





1,060





467













1,892





3





3,195





1,352











4,550





6,442Contractors


117





152





135













404











19





23











42





446Housing associations














95













95

















325











325





420Total gross loans and receivables


1,335





8,287





2,477













12,099





4





6,912





2,958





278





10,152





22,251Analysed as to asset qualitySatisfactory


379





1,927





1,220













3,526





1





1,153





414





60





1,628





5,154Watch


123





461





529













1,113











354





93





78





525





1,638Vulnerable


140





512





400













1,052











232





339





32





603





1,655Impaired


693





5,387





328













6,408





3





5,173





2,112





108





7,396





13,804Total criticised loans


956





6,360





1,257













8,573





3





5,759





2,544





218





8,524





17,097Total loans percentage


%





%





%





%







%





%





%





%





%





%





%Criticised loans/total loans


72





77





51













71





87





83





86





78





84





77Impaired loans/total loans


52





65





13













53





87





75





71





39





73





62Impairment provisions  statement of financial position*Specific


549





2,574





141













3,264





2





3,241





1,147





27





4,417





7,681IBNR


29





146





45













220











93





72





38





203





423Total impairment provisions


578





2,720





186













3,484





2





3,334





1,219





65





4,620





8,104Provision cover percentage


%





%





%





%







%





%





%





%





%





%





%Specific provisions/impaired loans


79





48





43













51





70





63





54





25





60





56Total provisions/impaired loans


83





50





57













54





70





64





58





60





62





59Total provisions/total loans


43





33





7













29





61





48





41





23





46





36Impairment charge/average loans


4.60





3.23





1.43













2.97





7.49





3.30





5.40





(1.76
)




3.69





3.30








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 115



---

##### Table of Contents

|     |  |                                                                                                                                                                              |  | 
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | 
|LOGO |  | Risk management  3. Individual risk types
3.1 Credit risk  Credit profile of the loan portfolio 
Loans and receivables to customers  Property and construction(continued) |  | 






Core

Non-Core




2011 TotalPBB 
 m




CICB 
 m




AIB UK 
 m




EBS 
 m




Total  Core
 m




PBB 
 m




CICB 
 m




AIB UK 
 m




EBS 
 m




Total  Non-Core
 m




 mInvestmentCommercial investment


621





8,871





1,248











10,740











819





1,266





896





2,981





13,721Residential investment


60





153





533











746





247





1,563





565











2,375





3,121681





9,024





1,781











11,486





247





2,382





1,831





896





5,356





16,842Land and developmentCommercial development








4





87











91





138





1,246





104











1,488





1,579Residential development








60





646











706





266





3,206





887











4,359





5,065





64





733











797





404





4,452





991











5,847





6,644Contractors


129





187





131











447











8





31











39





486Housing associations














127











127

















391











391





518Total gross loans and receivables


810





9,275





2,772











12,857





651





6,842





3,244





896





11,633





24,490Analysed as to asset qualitySatisfactory


389





4,083





1,674











6,146





162





1,414





636





127





2,339





8,485Watch


93





1,030





650











1,773





77





278





75





164





594





2,367Vulnerable


95





368





275











738





101





276





560





64





1,001





1,739Impaired


233





3,794





173











4,200





311





4,874





1,973





541





7,699





11,899Total criticised loans


421





5,192





1,098











6,711





489





5,428





2,608





769





9,294





16,005Total loans percentage


%





%





%





%





%





%





%





%





%





%





%Criticised loans/total loans


52





56





40











52





75





79





80





86





80





65Impaired loans/total loans


29





41





6











33





48





71





61





60





66





49Impairment provisions  statement of financial positionSpecific


189





1,593





84











1,866





230





3,290





942





141





4,603





6,469IBNR


36





493





53











582





72





222





155





68





517





1,099Total impairment provisions


225





2,086





137











2,448





302





3,512





1,097





209





5,120





7,568Provision cover percentage


%





%





%





%





%





%





%





%





%





%





%Specific provisions/impaired loans


81





42





49











44





74





67





48





26





60





54Total provisions/impaired loans


97





55





79











58





97





72





56





39





66





64Total provisions/total loans


28





23





5











19





46





51





34





23





45





31Impairment charge/average loans






























































14.12








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3.1 Credit risk  Credit profile of the loan portfolio Loans and receivables to customers  Property and construction(continued) At 31 December 2012, the property and construction portfolio amounted to
 22.3 billion. This sector continues to be very challenging,
particularly in Ireland. However, latest information available on the commercial segment indicates that while asset prices continue to fall there are indications of a stabilisation reported by some sectors in prime rents and yields, nevertheless,
pressure on rental cash flows continues as a result of tenants renegotiating lease terms including rental holidays. There are also positive signs in the housing market with activity levels improving, albeit off a low base, and prices beginning to
stabilise and rents recovering. In the UK, while there have also been signs of improvement in prime markets, such as London and the South East, secondary markets remain relatively illiquid. The level of criticised loans in the Groups property and construction portfolio at
 17.1 billion has increased from  16.0 billion at 31 December 2011. However, the pace of deterioration
has slowed since 2011 when the increase into criticised was  3.0 billion. Impaired loans amounted to  13.8 billion or 62% of the portfolio (31 December 2011:  11.9 billion or 49%). The Group has
 7.7 billion in statement of financial position specific provisions providing cover on impaired loans of 56% (31 December 2011:  6.5 billion or 54%). Total statement of financial position provisions of  8.1 billion represented 36% of loans and receivables (31 December 2011:  7.6 billion or 31%). The income statement provision charge for the year to 31 December 2012 of  781 million or 3.30% of average customer loans compared with  3,580 million or 14.12% to 31 December
2011. The reduced income statement provision charge was impacted by a release of  659 million IBNR provisions as outlined on page 83. Investment Property investment loans amounted to 14.9 billion at 31 December 2012 (31 December 2011:  16.8 billion) of which
 12.1 billion related to commercial investment. The reduction was largely as a result of deleveraging in the CICB, AIB UK and EBS market segments.  9.1 billion
of the investment property portfolio related to loans for the purchase of property in the Republic of Ireland,  5.0 billion in the United Kingdom,  0.2 billion
in the United States of America and  0.6 billion in other geographical locations (31 December 2011:  9.1 billion, 
6.4 billion,  0.4 billion and  0.9 billion respectively).  10.6 billion or 71% of the investment property portfolio was criticised at 31 December 2012 compared with  9.7
billion or 58% at 31 December 2011. Included in criticised loans were  8.0 billion of loans which were impaired (31 December 2011:  6.3 billion) on which
the Group had  3.4 billion in statement of financial position specific provisions, providing cover of 42% (31 December 2011:  2.6 billion or 41%). Total
provisions as a percentage of total loans was 25%, up from 21% at December 2011 for this sector. The income statement provision charge for the year to
31 December 2012 was  420 million or 2.64% of average property investment customer loans (31 December 2011:
 1,850 million or 11.43%). Land and development At 31 December 2012, Group land and development loans amounted to  6.4
billion (31 December 2011:  6.6 billion).  4.6 billion of this portfolio related to loans in the Republic of Ireland and
 1.8 billion related to loans in the United Kingdom, which is relatively unchanged from 31 December 2011. While
there was some increase in sales of land sites in Ireland during 2012, this sub-sector continues to be difficult and is likely to remain so given the lack of appetite for bank funding for this type of development. Land values have reverted to
agricultural values in some locations where the possibility of development in the medium term is remote.  6.2 billion of the land and development portfolio was criticised up from  6.1 billion at 31 December 2011. Included in criticised loans were  5.6 billion of loans which were impaired (31 December 2011:  5.4 billion) on which the Group had  4.1 billion in
statement of financial position specific provisions providing cover of 74% (31 December 2011: 69%). Total provisions as a percentage of total loans was 65%, up from 58% at 31 December 2011 for this sector. The income statement provision charge for the year to was  334 million
or 4.90% of average land and development customer loans compared with  1,663 million or 25.0% to 31 December 2011. There was also an income statement provision charge of  27 million for
other property and construction exposures, comprising a charge of  39 million for contractors and a release of IBNR provision of  12 million relating
to housing associations in AIB UK.








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|LOGO |  | Risk management  3. Individual risk types
3.1 Credit risk  credit profile of the loan portfolio 
Loans and receivables to customers  SME/other commercial lending The
following table analyses SME/other commercial lending by market segment showing asset quality and impairment provisions for the years ended 31 December 2012 and 31 December 2011: |  | 






Core

Non-Core

2012 TotalPBB 
 m




CICB 
 m




AIB UK 
 m




Total  Core
 m




PBB 
 m




CICB 
 m




AIB UK 
 m




Total  Non-Core  
m




 mAgriculture


1,048





590





43





1,681











29





12





41





1,722DistributionHotels


58





1,386





647





2,091











126





407





533





2,624Licensed premises


211





681





46





938











32





154





186





1,124Retail/Wholesale


442





1,675





201





2,318











53





69





122





2,440Other distribution


90





109





9





208

















7





7





215801





3,851





903





5,555











211





637





848





6,403Other services


721





1,411





1,845





3,977





1





73





919





993





4,970Other


466





1,084





407





1,957











45





148





193





2,150Total gross loans and receivables


3,036





6,936





3,198





13,170





1





358





1,716





2,075





15,245Analysed as to asset qualitySatisfactory


1,573





2,558





2,189





6,320











41





715





756





7,076Watch


319





637





472





1,428











9





36





45





1,473Vulnerable


376





580





203





1,159











33





256





289





1,448Impaired


768





3,161





334





4,263





1





275





709





985





5,248Total criticised loans


1,463





4,378





1,009





6,850





1





317





1,001





1,319





8,169Total loans percentage


%





%





%





%





%





%





%





%





%Criticised loans/total loans


48





63





32





52





84





88





58





64





54Impaired loans/total loans


25





46





10





32





42





77





41





47





34Impairment provisions  statement of financial position*Specific


637





1,947





164





2,748





1





168





339





508





3,256IBNR


56





136





28





220











5





15





20





240Total impairment provisions


693





2,083





192





2,968





1





173





354





528





3,496Provision cover percentage


%





%





%





%





%





%





%





%





%Specific provisions/impaired loans


83





62





49





64





100





61





48





52





62Total provisions/impaired loans


90





66





58





70





113





63





50





54





67Total provisions/total loans


23





30





6





23





47





48





21





25





23Impairment charge/average loans


3.03





4.41





0.79





3.20





0.00





13.21





2.77





3.67





3.26








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|118 |  |                                                            



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| |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----
| |  | Risk management  3. Individual risk types
3.1 Credit risk  credit profile of the loan portfolio 
Loans and receivables to customers  SME/other commercial lending(continued) |  | LOGO






Core

Non-Core




2011 TotalPBB 
 m




CICB 
 m




AIB UK 
 m




Total  Core
 m




PBB 
 m




CICB 
 m




AIB UK 
 m




Total  Non-Core  
m




 mAgriculture


1,044





666





43





1,753

















13





13





1,766DistributionHotels


62





1,557





645





2,264

















485





485





2,749Licensed premises


223





740





47





1,010

















112





112





1,122Retail/Wholesale


504





2,018





211





2,733

















82





82





2,815Other distribution














36





36

















19





19





55789





4,315





939





6,043

















698





698





6,741Other services


759





1,589





1,910





4,258

















1,161





1,161





5,419Other


537





1,151





458





2,146





15





20





180





215





2,361Total gross loans and receivables


3,129





7,721





3,350





14,200





15





20





2,052





2,087





16,287Analysed as to asset qualitySatisfactory


1,677





3,375





2,392





7,444





4





5





919





928





8,372Watch


452





752





478





1,682





1





2





79





82





1,764Vulnerable


380





543





263





1,186





1





1





401





403





1,589Impaired


620





3,051





217





3,888





9





12





653





674





4,562Total criticised loans


1,452





4,346





958





6,756





11





15





1,133





1,159





7,915Total loans percentage


%





%





%





%





%





%





%





%





%Criticised loans/total loans


46





56





29





48





73





75





55





56





49Impaired loans/total loans


20





40





6





27





60





60





32





32





28Impairment provisions - statement of financial positionSpecific


481





1,759





109





2,349





8





10





298





316





2,665IBNR


128





185





57





370





2











56





58





428Total impairment provisions


609





1,944





166





2,719





10





10





354





374





3,093Provision cover percentage


%





%





%





%





%





%





%





%





%Specific provisions/impaired loans


78





58





50





60





89





83





46





47





58Total provisions/impaired loans


98





64





76





70





111





83





54





55





68Total provisions/total loans


19





25





5





19





67





50





17





18





19Impairment charge/average loans


















































9.57








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|LOGO |  |  |  | 






3.1 Credit risk  credit profile of the loan portfolio Loans and receivables to customers  SME/other commercial lending(continued) The SME/other commercial lending portfolio amounted to  15.2 billion at
31 December 2012 and includes lending to the following main sub-sectors: hotels and licensed premises  3.7 billion; retail/wholesale  2.4 billion; other
services  5.0 billion; and agriculture  1.7 billion (31 December 2011:  3.9 billion,
 2.8 billion,  5.4 billion and  1.8 billion respectively). Exposures in this sector of c. 67% are to SMEs in Ireland, who are heavily dependant on the domestic economy which remained challenged throughout 2012. A substantial
portion of SME customers experienced a reduction in turnover during the year which together with economic conditions and the level of indebtedness in the sector has resulted in many SMEs experiencing difficulty in managing the finances of their
businesses. Consequently, there has been a significant amount of refinance and restructuring activity with regard to existing facilities in order to sustain these businesses. The level of criticised loans at  8.2 billion representing 54% of the
portfolio (31 December 2011:  7.9 billion or 49% is indicative of the continuing stress on trading entities. Within criticised loans, impaired loans amounted to
 5.2 billion or 34% of the sector (31 December 2011:  4.6 billion or 28%). The Group had statement of financial position specific provisions of  3.3 billion providing cover of 62% on impaired loans (31 December 2011:  2.7 billion or 58%). Statement of financial position total provisions of  3.5 billion
represented 23% cover of total loans for the sector (31 December 2011:  3.1 billion or 19%). The income statement
provision charge for the year to 31 December 2012 was  517 million or 3.26% of average customer loans compared with
 1,603 million or 9.57% to 31 December 2011. The reduction in the provision charge in the year was influenced
by a release of  205 million of income statement IBNR provisions. At 31 December 2011, the Group had IBNR provisions of  428 million, informed by a number of factors including: the level of arrears; and the levels of stress in the portfolios. Specific provisions were raised during 2012 which together with the reduction in
the non impaired portfolio of  1.7 billion, resulted in a reduction in the required level of IBNR provisions.








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3.1 Credit risk  credit profile of the loan portfolio Loans and receivables to customers  Corporate lending The following table
analyses corporate lending showing asset quality and impairment provisions for the years ended 31 December 2012 and 31 December 2011.  2012














2011Core




Non-Core




Total




Core




Non-Core




Total m




 m




 m




 m




 m




 mSatisfactory




2,873





1,197





4,070





3,729





2,779





6,508Watch




106





29





135





81





25





106Vulnerable




129





20





149





7





48





55Impaired




263





540





803





386





309





695Total criticised loans




498





589





1,087





474





382





856Total gross loans and receivables




3,371





1,786





5,157





4,203





3,161





7,364Total loans percentage




%





%





%





%





%





%Criticised loans/total loans




15





33





21





11





12





12Impaired loans/total loans




8





30





16





9





10





9Impairment provisions - statement of financial position*Specific




176





309





485





216





217





433IBNR




71





27





98





59





44





103Total impairment provisions




247





336





583





275





261





536Provision cover percentage




%





%





%





%





%





%Specific provisions/impaired loans




67





57





60





56





70





62Total provisions/impaired loans




94





62





73





71





84





77Total provisions/total loans




7





19





11





7





8





7Impairment charge/average loans




1.00





5.28





2.63

















5.26 The corporate portfolio amounted to  5.2
billion at 31 December 2012 compared with  7.4 billion at 31 December 2011. The reduction largely reflects the continued deleveraging of the portfolio along with scheduled repayments. Criticised loans at  1.1 billion represent 21% of the portfolio compared
with  0.9 billion or 12% at 31 December 2011. Within criticised loans, impaired loans amounted to  0.8 billion (31 December 2011:  0.7 billion) and the Group had statement of financial position specific provisions of  0.5 billion providing cover of 60% on these loans (31 December 2011:  0.4 billion or 62%). Statement of financial position total provisions of  0.6 billion represented 11% of loans and receivables (31 December 2011:  0.5 billion or 7%). The income statement provision charge for the year was  167 million or
2.63% of average customer loans (31 December 2011:  508 million or 5.26%). The reduced provision charge was due to a lower level of large corporate credit defaults compared with 2011 when a number of
large borrowers were impaired and required a high level of specific provision.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 121



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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  credit profile of the loan portfolio Credit ratings* Internal credit ratings The Group uses various rating tools in managing its credit risk. Each rating tool has up to 11 rating/grading points, each point or grade in turn has its own
ascribed Probability of Default (PD), which differentiates the risk associated with borrowers under each grade. Rating tools are designed to ensure they are suitable for the type of borrower being rated and therefore can have different
PD bands or scales. Hence, a rating tool used to grade credit card borrowers will have a higher average PD than a tool being used to rate commercial borrowers and will have different PDs attaching to individual grading points. To facilitate the aggregation of these individual tools for reporting purposes, the Group uses a Reporting masterscale which has 13 points, each with its own PD. The PD
range for the full masterscale is 0% to 100% (where 100% indicates a borrower who is in default). The reporting masterscale in itself is not a rating tool and is not used in decision making or in the ongoing management of loans. It facilitates
mapping of the individual rating tools purely by PD. The role of rating tools is outlined in the Risk Management section of this report (pages 72 and 73) and
highlights the role of rating tools in identifying and managing loans including those of lower credit quality. These lower credit quality loans are referred to as Criticised loans and while identifiable within their own rating models can
be spread across different ranges in the reporting masterscale as they carry different PDs. For reporting purposes loans and receivables to customers are
categorised into: 

(i)

Neither past due nor impaired;

(ii)

Past due but not impaired; and

(iii)

Impaired. Neither past due nor impaired applies to those loans that are neither contractually past due and/or have not been categorised as impaired
by the Group. Past due but not impaired is defined as follows: When a borrower fails to make a contractually due payment, a loan is deemed to be past due.
Past due days is a term used to describe the cumulative number of days a missed payment is overdue. This category can also include an element of loans where negotiation with the borrower on new terms and conditions has not concluded to
full completion of documentation while the original loan facility remains outside its original terms for more than 90 days. When a loan or exposure is past due, the entire exposure is reported as past due, not just the amount of any excess or
arrears. Impaired loans are defined as follows: A loan is impaired if there is objective evidence of impairment as a result of one or more events that occurred
after the initial recognition of the assets (a loss event) and that loss event (or events) has an impact such that the present value of future cash flows is less than the current carrying value of the financial asset or group of assets
and requires an impairment provision to be recognised in the income statement. Loans that are neither past due nor impaired are further classified into
Strong, Satisfactory and Higher Risk, which are described as follows: Grades 1  3 (Strong)typically includes strong corporate and
commercial lending combined with elements of the retail portfolios and residential mortgages. Grades 4  10 (Satisfactory)typically includes new
business written and existing satisfactorily performing exposures across all portfolios. The lower end of this category includes a portion of the Groups criticised loans (i.e. loans requiring additional management attention over and above that
normally required for the loan type) that are neither past due nor impaired. Grades 11  13 (Higher Risk)contains the remainder of the Groups
criticised loans that are neither past due nor impaired, together with loans written at a high PD where there is a commensurate higher margin for the risk taken. Loans and receivables to customers  Lending classifications: Corporate/commercialincludes loans to corporate and larger commercial enterprises processed through one of the Groups corporate/commercial rating tools,
where the exposure is typically greater than  300,000. Residential
mortgagesinclude loans for the purchase of residential properties processed through the Groups residential mortgage rating tools. In some circumstances, residential mortgage exposures can be processed through the Groups Corporate
and Commercial rating tools (e.g. where a borrower has more than five investment properties). Otherincludes loans to SMEs and individuals. In some cases,
behaviour scoring and credit scoring methodologies are used.








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|122 |  |                                                            



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3.1 Credit risk  credit profile of the loan portfolio Credit ratings*(continued) Internal credit ratings The internal credit ratings profile of loans and receivables to customers by asset class at 31 December 2012 and 31 December 2011 is as follows:  2012











2011Corporate/


Residential


Other


Total


Corporate/


Residential


Other


Totalcommercial


mortgages








commercial


mortgagesMasterscale grade

 m


 m


 m


 m


 m


 m


 m


 m1 to 3


1,135



8,338



1,006



10,479



2,037



9,153



1,041



12,2314 to 10


14,295



19,517



2,737



36,549



21,071



22,554



3,019



46,64411 to 13


4,380



3,881



1,128



9,389



4,575



4,245



1,361



10,181Neither past due nor impaired


19,810



31,736



4,871



56,417



27,683



35,952



5,421



69,056Past due but not impaired


1,618



2,018



403



4,039(
1)


2,120



2,193



485



4,798(
2)Impaired


20,489



7,347



1,580



29,416



17,871



5,583



1,379



24,833Total gross loans and receivables


41,917



41,101



6,854



89,872



47,674



43,728



7,285



98,687Unearned income














(108)















(125)Deferred costs














89















103Impairment provisions














(16,528)















(14,941)Total














73,325















83,724 (1)Of this amount,  46 million relates to masterscale grade 1 3;  964 million relates to masterscale grade 4  10;
and  3,029 million relates to masterscale grade 11  13. (2)Of this amount,  66 million relates to masterscale grade 1  3;
 1,394 million relates to masterscale grade 4  10; and  3,338 million relates to masterscale grade 11  13. External credit ratings of financial assets The external credit ratings
profile of loans and receivables to banks, NAMA senior bonds, trading portfolio financial assets (excluding equity securities) and financial investments available for sale (excluding equity shares) at 31 December 2012 and 31 December 2011
is as follows:  2012Bank


Corporate


Sovereign


Other


Total m


 m


 m


 m


 mAAA/AA


2,452



3



3,881



583



6,919A


2,347



15



221



223



2,806BBB+/BBB/BBB-


1,167



60



24,995
(1)


79



26,301Sub investment


103



99



26



79



307Unrated


76



115











191Total


6,145



292



29,123



964



36,5242011Bank


Corporate


Sovereign


Other


Total m


 m


 m


 m


 mAAA/AA


2,741







3,966



1,468



8,175A


3,073



14



175



171



3,433BBB+/BBB/BBB-


3,170



77



25,185
(1)


35



28,467Sub investment


175



150



48



68



441Unrated


96



160







1



257Total


9,255



401



29,374



1,743



40,773 (1)Includes NAMA senior bonds which do not have an
external credit rating and to which the Group has attributed a rating of BBB+ (31 December 2011: BBB+) i.e. the external rating of the Sovereign.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 123



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|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  credit profile of the loan portfolio Leveraged debt by geographic location and industry sector Leveraged lending
(including the financing of management buy-outs, buy-ins and private equity buy-outs) is conducted primarily through specialist lending teams. The leveraged loan book is held as part of the loans and receivables to customers portfolio. Specific
impairment provisions of  34 million (31 December 2011:  70 million) are currently held against impaired
exposures of  72 million (31 December 2011:  106 million). These impaired exposures are not included in the analysis below. The unfunded element below
includes off-balance sheet facilities and the undrawn element of facility commitments. The portfolio continues to reduce, in large part due to AIBs
deleveraging plans.  2012





2011Funded


Unfunded


Funded


UnfundedLeveraged debt by geographic location*

 m


 m


 m


 mUnited Kingdom


84



24



215



35Rest of Europe


39



4



220



53United States of America


325



50



777



131Rest of the World


31







62



1479



78



1,274



220  2012


2011Funded leveraged debt by industry sector*

 
m


 mAgriculture






6Property and construction






7Distribution


91



298Energy


29



42Financial


5



19Manufacturing


158



474Transport


14



63Other services


182



365479



1,274 Large exposures (including disposal groups and non-current assets held for sale) AIBs Group Large Exposure Policy sets out maximum exposure limits to, or on behalf of, a customer or a group of connected customers. At 31 December 2012, the Groups top 50 exposures amounted to 
9.3 billion, and accounted for 10.4% ( 10.5 billion and 10.6% at 31 December 2011) of the Groups on-balance sheet total gross loans and receivables to customers. No single customer exposure
exceeded regulatory guidelines. In addition, the Group holds NAMA senior bonds amounting to  17.4 billion (31 December 2011:  19.9 billion).








|    |  |                                                             
|--- |  | ------------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements.
|124 |  |                                                             



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| |  | ------------------------------------------ |  | ----
| |  | Risk management  3. Individual risk types |  | LOGO






3.1 Credit risk 
Analysis of credit risk  5 year summaries This section sets out 5 year summaries as required for SEC reporting as follows:  

Loans and receivables to customers by geography and industry sector  

Percentages of loans and receivables to customers by geography and industry sector  

Risk elements in lending  

Impaired loans and receivables to customers  

Provisions for impairment (banks and customers)  

Movements in provisions for impairments on loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within disposal groups and non-current assets held for sale)  

Additional information on provisions for impairment  

Loans charged off and recoveries of previously charged off loans  

Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity  

Analysis of loans and receivables held for sale to NAMA by geography and industry sector  

Cross-border outstandings








125



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|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Loans and receivables to customers by geography and industry sector* The credit
portfolio is diversified within each of its geographic markets (which are principally in Ireland and the United Kingdom) by spread of locations, industry classification and individual customer. Other than property and construction in Ireland (17.8%) and residential mortgages in Ireland (43.9%), as at 31 December 2012, no one industry or loan category,
in any geographic market accounts for more than 10% of AIB Groups total loan portfolio. The following table shows the gross loans and receivables to customers
portfolio by geography and industry sector at 31 December 2012, 2011, 2010, 2009 and 2008 excluding in 2010 and 2009 those held for sale to NAMA. which are analysed on page 142.  2012


2011


2010


2010


2009


2008 m


 m


Continuingoperations m


Discontinued operations
 m


 m


 mIRELANDAgriculture


1,727



1,810



1,939







2,015



2,217Energy


326



431



686







844



992Manufacturing


1,271



1,563



2,617







3,108



3,801Property and construction


15,983



17,222



17,246







15,930



33,290Distribution


5,839



6,391



7,626







8,182



9,364Transport


538



614



809







979



1,016Financial


592



1,048



1,368







1,403



1,549Other services


3,093



3,276



4,080







4,700



5,422Personal  Residential mortgages


39,486



41,847(
1)


27,290







27,818



26,546 Other


4,223



4,755



5,349







6,242



7,357Lease financing


457



544



764







922



1,107Guaranteed by Irish Government






















173,535



79,501



69,774







72,143



92,662UNITED KINGDOMAgriculture


54



58



67







120



149Energy


118



250



304







292



372Manufacturing


350



486



843







1,193



1,348Property and construction


6,228



6,938



7,430







7,068



10,312Distribution


1,950



2,109



2,439







2,639



2,615Transport


614



683



749







601



647Financial


190



320



525







696



826Other services


3,050



3,474



4,523







4,936



5,356Personal  Residential mortgages


3,035



3,325



3,534







3,635



3,629 Other


475



566



672







861



757Lease financing










8







48



6116,064



18,209



21,094







22,089



26,072UNITED STATES OF AMERICAAgriculture


















3



6Energy


19



41



201







435



614Manufacturing


4



12



60







161



260Property and construction


40



218



732







904



1,090Distribution


1



14



122







162



209Transport


22



32



73







69



76Financial


3







29







54



146Other services


184



271



751







753



977Personal Residential mortgages






















273



588



1,968







2,541



3,378 (1)The significant increase in residential mortgages
in Ireland in 2011 compared with 2010 reflects the EBS portfolio which was acquired by AIB in July 2011.








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|126 |  |                                                            



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| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






3.1 Credit risk  Analysis of credit risk  5 year summaries Loans and receivables to customers portfolio by geography and industry sector*(continued)  2012


2011


2010


2010


2009


2008 m


 m


Continuing operations  m


Discontinued   operations
 m


 m


 mPOLANDAgriculture














133



126



165Energy














70



86



76Manufacturing














978



1,024



1,145Property and construction














2,542



2,852



2,760Distribution














837



804



790Transport














81



83



100Financial














125



143



237Other services














318



322



461Personal  Residential mortgages














1,821



1,538



1,352 Other














1,051



1,039



857Lease financing














685



711



745











8,641



8,728



8,688REST OF WORLD






389



1,042







1,106



1,363Total gross loans to customers


89,872(
1)


98,687(
1)


93,878(
2)


8,641



106,607



132,163Unearned income


(108)



(125)



(167)



(67)



(279)



(382)Deferred costs


89



103















Provisions for impairment


(16,528)



(14,941)



(7,299)



(344)



(2,987)



(2,292)Total loans and receivables


73,325



83,724



86,412



8,230



103,341



129,489 (1)Includes
 475 million (2011:  1,195 million) in loans and receivables to customers that relate to Disposal
groups and non-current assets held for sale. (2)Includes  74 million relating to AmCredit which was held within Disposal groups and non-current assets held for sale.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 127



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|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Percentages of loans and receivables to customers by geography and industry sector The following table shows the percentages of loans and receivables to customers by geography and industry sector at 31 December 2012, 2011, 2010, 2009 and 2008,
excluding in 2010 and 2009 those held for sale to NAMA but including, in 2010, those within disposal groups and non-currents assets held for sale, that were not classified as discontinued operations (0.1%, Rest of World). 2012




2011


2010


2010


2009




2008%




%


Continuingoperations%


Discontinued   operations   %


%




%IRELANDAgriculture


1.9





1.8



1.9







1.9





1.7Energy


0.4





0.4



0.7







0.8





0.7Manufacturing


1.4





1.6



2.6







2.9





2.9Property and construction


17.8





17.5



16.8







14.9





25.2Distribution


6.5





6.5



7.4







7.7





7.1Transport


0.6





0.6



0.8







0.9





0.8Financial


0.7





1.1



1.3







1.3





1.1Other services


3.5





3.3



4.0







4.4





4.1Personal  Residential mortgages


43.9





42.4



26.6







26.1





20.1 Other


4.7





4.8



5.2







5.9





5.6Lease financing


0.5





0.6



0.7







0.9





0.881.9





80.6



68.0







67.7





70.1UNITED KINGDOMAgriculture


0.1





0.1



0.1







0.1





0.1Energy


0.1





0.3



0.3







0.3





0.3Manufacturing


0.4





0.5



0.8







1.1





1.0Property and construction


6.9





7.0



7.3







6.6





7.8Distribution


2.2





2.1



2.4







2.5





2.0Transport


0.7





0.7



0.7







0.6





0.5Financial


0.2





0.3



0.5







0.7





0.6Other services


3.3





3.5



4.4







4.6





4.0Personal  Residential mortgages


3.4





3.4



3.4







3.4





2.7 Other


0.5





0.6



0.7







0.8





0.6Lease financing


























0.117.8





18.5



20.6







20.7





19.7UNITED STATES OF AMERICAEnergy












0.2







0.3





0.5Manufacturing












0.1







0.2





0.2Property and construction


0.1





0.2



0.7







0.8





0.8Distribution












0.1







0.2





0.2Transport












0.1







0.1





0.1Financial




















0.1





0.1Other services


0.2





0.3



0.7







0.7





0.70.3





0.5



1.9







2.4





2.6POLANDAgriculture
















0.1



0.1





0.1Energy
















0.1



0.1





0.1Manufacturing
















1.0



1.0





0.9Property and construction
















2.5



2.7





2.1Distribution
















0.8



0.7





0.6Transport
















0.1



0.1





0.1Financial
















0.1



0.1





0.2Other services
















0.3



0.3





0.3Personal  Residential mortgages
















1.8



1.4





1.0 Other
















1.0



1.0





0.6Lease financing
















0.7



0.7





0.6













8.5



8.2





6.6REST OF WORLD








0.4



1.0







1.0





1.0Total loans


100.0





100.0



91.5



8.5



100.0





100.0








128



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3.1 Credit risk  Analysis of credit risk  5 year summaries Risk elements in lending The Groups loan control and review procedures
generally do not include the classification of loans as non-accrual, accruing past due, restructured and potential problem loans, as defined by the SEC. Management has, however, set out in the following table the amount of loans, (including, in the
case of 2010 and 2009, those held for sale to NAMA and in 2010 those within discontinued operations)(2), at 31 December, without giving effect to available security and before deduction of
provisions, using the SECs classification  2012
 m




2011  m




2010  m




2009  m




2008  mLoans accounted for on non-accrual basis(1)Ireland


24,719





21,047





10,215





14,922





1,972United Kingdom


4,641





3,725





2,524





1,944





689United States of America


56





49





75





42





61Poland(2)














587





477





250Rest of World








12





68





68





1929,416





24,833





13,469





17,453





2,991Accruing loans which are contractually past due 90 days or more as to principal or interestIreland


1,190





1,371





1,768





815





153United Kingdom


162





74





59





83





117United States of America














29











13Poland(2)














3





4





11,352





1,445





1,859





902





284Restructured loans not included above(3)


55





75





233





140





Other real estate and other assets owned








17





12





10





 (1)These figures represent AIBs impaired
loans before provisions. Total interest income that would have been recorded during the year ended 31 December 2012 had interest on gross impaired loans been included in income amounted to  771 million (2011:  528 million; 2010:  462 million; 2009:
 235 million; 2008:  109 million) -  656 million for Ireland, 
114 million for the United Kingdom and  1 million for the United States. Of the total figure of  771 million above,  392 million (2011:  236 million; 2010:  296 million; 2009:  172
million; 2008:  45 million) was included in income for the year ended 31 December 2012 for interest on impaired loans (net of provisions). (2)For 2010, Poland is classified as a discontinued operation. (3)AIB, on occasion, restructures loans on uncommercial terms. In circumstances
where it enters into such arrangements these loans are typically classified as impaired and hence included in the table above under that category. In certain circumstances, as part of a loan restructure, AIB will convert debt to equity and if the
recapitalised borrower is viable will reclassify the debt as performing. The restructured loans figure above solely relates to the loan element of these restructures which is deemed to be performing (i.e. non-impaired) following the restructure
event. The value of equity held in the statement of financial position as at 31 December 2012 from such transactions was  19 million (2011:  24 million) and the amount of debt resulting from such transactions and held in performing grades was  9 million (2011:
33 million). AIB Group generally expects that loans, where known information about possible credit problems causes
management to have serious doubt as to the ability of borrowers to comply with loan repayment terms, would be included under its definition of impaired loans and would therefore have been reported in the above table. In AIB Group, loans are typically reported as impaired when interest thereon is 90 days or more past due or where a specific provision is raised, except: (i) where
there is sufficient evidence that repayment in full, including all interest up to the time of repayment (including costs) will be made within a reasonable and identifiable time period, either from realisation of security, refinancing commitment or
other sources; or (ii) where there is independent evidence that the balance due, including interest, is adequately secured. Upon impairment, the accrual of interest income based on the original terms of the claim is discontinued but the
increase of the present value of impaired claims due to the passage of time is reported as interest income.








129



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|     |  |                                            |  | 
|---- |  | ------------------------------------------ |  | 
|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Impaired loans and receivables to customers by geography and industry sector* The following table presents an analysis of AIB Groups impaired loans and receivables to customers by geography and industry sector at 31 December 2012, 2011,
2010, 2009 and 2008. Loans and receivables held for sale to NAMA are analysed on page 142.  2012




2011


2010


2010


2009




2008 m




 m


Continuingoperations m


Discontinued    operations
 m


 m




 mIRELANDAgriculture


322





299



193







105





47Energy


32





34



7







11





10Manufacturing


319





303



293







134





71Property and construction


10,856





9,467



5,510







2,275





1,148Distribution


2,812





2,499



1,505







846





147Transport


113





113



77







34





11Financial


219





168



61







70





17Other services


706





628



384







206





65Personal  Residential mortgages


7,856





6,138



1,013







475





163 Other


1,345





1,253



777







556





257Lease financing


139





145



135







96





3624,719





21,047



9,955







4,808





1,972UNITED KINGDOMAgriculture


12





11



10







4





2Energy


1





1











2





-Manufacturing


153





132



75







66





33Property and construction


2,908





2,389



1,408







449





432Distribution


630





557



240







229





89Transport


244





14



2







2





2Financial


26





23



15







85





3Other services


307





323



117







168





53Personal  Residential mortgages


274





193



115







56





53 Other


86





82



61







40





224,641





3,725



2,043







1,101





689UNITED STATES OF AMERICAEnergy


3





3



1













32Manufacturing








1











11





17Property and construction


40





43



40







8





12Distribution








2



22













Transport












12













Other services


13

















23





56





49



75







042





61POLANDAgriculture
















12



10





39Energy
















1



2





Manufacturing
















62



74





46Property and construction
















264



194





61Distribution
















57



52





30Transport
















15



8





3Financial
















2



1





-Other services
















23



13





7Personal  Residential mortgages
















19



13





11 Other
















97



75





36Lease financing
















35



35





17













587



477





250REST OF WORLD








12



68







68





19TOTAL


29,416





24,833



12,141



587



6,496





2,991








|    |  |                                                            
|--- |  | -----------------------------------------------------------
|    |  | *Forms an integral part of the audited financial statements
|130 |  |                                                            



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##### Table of Contents

| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






3.1 Credit risk  Analysis of credit risk  5 year summaries Impaired loans and receivables to customers by geography and industry sector* (continued) 2012 The following commentary on loans and receivables includes those
within disposal groups and non current assets held for sale. Group impaired loans were
 29,416 million at 31 December 2012 and now represent 33% of loans and receivables up from
 24,833 million or 25% at 31 December 2011. Ireland Impaired loans in Ireland were  24,719 million representing 34% of
total group loans and receivables, up from  21,047 million or 27% at December 2011. 85% or  3,107 million of this increase relates to residential
mortgages and property loans and reflects the continuing weak economic environment in Ireland with high unemployment, low level of activity in the property sector and muted consumer spending impacting impaired loans in most sectors but particularly
the following: property (up  1,389 million); distribution (hotels, licensed premises, retail) (up  313 million); and residential mortgage (up  1,718 million). United Kingdom In the United Kingdom, impaired loans increased by  916 million to  4,641 million primarily in the following sectors: property (up  519 million); transport (up  230 million);
and residential mortgages (up  81 million). The increase reflects the ongoing stress in the economic environment, particularly in the North of England and Northern Ireland. United States of America Impaired loans in the United States of America
were  56 million, up on the 2011 level of  49 million and are primarily related to borrowers in the
property sector. Rest of World Impaired loans in the rest of world
reduced to Nil from  12 million in 2011 as a result of the sale of AmCredit during the year. 2011 The following commentary on loans and receivables, includes those
within disposal groups and non current assets held for sale. It also includes EBS which was acquired by AIB on 1 July 2011. Group impaired loans were  24,833 million at 31 December 2011 and now represent 25% of loans and receivables. Ireland Impaired loans were  21,047 million representing 27% of total Group loans and receivables, up from  9,955 million at December 2010.
 3,544 million of this increase relates to residential mortgage and property investment loans in EBS which was acquired by AIB on 1 July 2011. The underlying increase in AIB impaired loans in
the year was  7,548 million and reflects the impact the continuing difficult economic environment in Ireland with rising unemployment, a lack of activity in the property/housing sectors and reduced
consumer spending is having on borrowers in most sectors, particularly the following: property (up  3,416 million); distribution (hotels, licensed premises, retail) (up
 994 million); and residential mortgages (up  2,122 million). United
Kingdom Impaired loans increased by  1,682 million to  3,725 million primarily in the following sectors: property (up  981 million); distribution (up  317 million);
other services (up  206 million); and residential mortgages (up  78 million). United States of America Impaired loans in the United States of America
were  49 million, down on the 2010 level of  75 million and are related to borrowers in the property
sector. The reduction is primarily due to the write-off and sale of certain assets. Rest of World Impaired loans in the Rest of World were  12 million, down from  68 million in 2010 and relate to residential mortgages in AmCredit. The reduction is largely due to the sale of portfolios in AmCredit and other loan portfolios in the CICB market segment.








| |  |                                                             |  |    
| |  | ----------------------------------------------------------- |  | ---
| |  | *Forms an integral part of the audited financial statements |  |    
| |  |                                                             |  | 131



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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Provisions for impairment on loans and receivables (both to banks and customers)* The following table presents an analysis of provisions for impairment on loans and receivables (both to banks and customers) at 31 December 2012, 2011, 2010, 2009
and 2008. Provisions for impairment on loans and receivables held for sale to NAMA are analysed separately on page 142. 2012




2011


2010


2010


2009




2008 m




 m


Continuingoperations m


Discontinued     operations
 m


 m




 mIRELANDAgriculture


225





192



100







44





19Energy


26





25



5







4





8Manufacturing


224





184



128







58





35Property and construction


6,205





5,332



2,310







557





398Distribution


1,723





1,442



678







286





57Transport


91





78



44







20





8Financial


160





137



49







53





10Other services


486





387



200







90





34Personal  Residential mortgages


2,589





1,718



212







81





32 Other


1,006





854



479







302





136Lease financing


133





121



109







67





2512,868





10,470



4,314







1,562





762UNITED KINGDOMAgriculture


8





7



5







1





Manufacturing


76





66



30







29





13Property and construction


1,469





1,130



525







178





134Distribution


290





256



121







88





37Transport


124





12



1







2





1Financial


12





9



3







35





2Other services


158





180



49







61





21Personal  Residential mortgages


110





67



30







16





3 Other


58





50



35







24





172,305





1,777



799







434





228UNITED STATES OF AMERICAEnergy


3





3

















4Manufacturing








1

















4Property and construction


7





7



14







2





4Other services


6

















4





Distribution












2













Transport












6













16





11



22







6





12POLANDAgriculture
















7



7





Energy
















1



1





Manufacturing
















29



24





Property and construction
















68



45





Distribution
















28



23





Transport
















7



4





Financial
















1



1





Other services
















13



8





101Personal  Residential mortgages
















8



6





32 Other
















77



58





Lease financing
















20



11





6













259



188





139REST OF WORLD








3



23







24





7TOTAL SPECIFIC PROVISIONS


15,189





12,261



5,158



259



2,214





1,148TOTAL IBNR PROVISIONS


1,343





2,684



2,145



85



777





1,146TOTAL PROVISIONS


16,532





14,945



7,303



344



2,991





2,294








|    |  |                                                            
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|    |  | *Forms an integral part of the audited financial statements
|132 |  |                                                            



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3.1 Credit risk  Analysis of credit risk  5 year summaries Movements in provisions for impairment on loans and receivables (includes loans and receivables within disposal groups and non-current assets held for sale)(1)  Years ended 31 December2012
 m




2011  m




2010 m




2009 m




2008 mTotal provisions at beginning of period


14,945





7,976





7,156





2,294





744Transfers in/(out)


34











(6
)




(10
)




Acquisition of subsidiaries








738

















Disposal of subsidiaries








(360
)
















Disposal of loans and receivables


(263
)






















Transferred from/(to) NAMA


4





(570
)




(4,569
)










Exchange translation adjustments


47





74





40





31





(117
)Recoveries of provisions previously charged off


4





4





48





6





1114,771





7,862





2,669





2,321





638Amounts charged offIreland


(399
)




(481
)




(490
)




(287
)




(68
)United Kingdom


(269
)




(253
)




(236
)




(149
)




(78
)United States of America


(2
)




(37
)




(20
)




(15
)




(1
)Poland








(2
)




(52
)




(57
)




(19
)Rest of World


(3
)




(29
)




(15
)




(12
)




(673
)




(802
)




(813
)




(520
)




(166
)Net provision movement(2)Ireland


1,897





6,457





5,312





4,671





1,348United Kingdom


541





1,371





705





530





363United States of America








25





30





10





12Poland








24





110





117





101Rest of World








12





11





33





92,438





7,889





6,168





5,361





1,833Recoveries of provisions previously charged off(2)Ireland


(2
)




(2
)




(3
)




(1
)




(7
)United Kingdom


(2
)




(2
)




(39
)




(1
)




(1
)United States of America














(1
)










Poland














(5
)




(4
)




(3
)(4
)




(4
)




(48
)




(6
)




(11)
)Total provisions at end of period


16,532





14,945





7,976





7,156





2,294Provisions at end of periodSpecific


15,189





12,261





5,646





5,798





1,148IBNR


1,343





2,684





2,330





1,358





1,14616,532





14,945





7,976





7,156





2,294Amounts include:Loans and receivables to banks


4





4





4





4





2Loans and receivables to customers


16,406





14,932





7,287





2,987





2,292Loans and receivables held for sale to NAMA














329





4,165





Loans and receivables of discontinued operations














344











Loans and receivables of disposal groups and non-current assets held for sale


122





9





12











16,532





14,945





7,976





7,156





2,294 (1)Provisions for loans and receivables held for
sale to NAMA are included in 2009 and 2010. (2)The aggregate of these sets of
figures represents the total provisions for impairment charged to income. Commentary on the movements is detailed on page 131 (impaired loans), on pages 134 to 137 (provisions for impairment) and page 139 (net loans charged off).








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3.1 Credit risk  Analysis of credit risk  5 year summaries Provisions for impairment on loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within discontinued
operations) The following table reconciles the total provisions for impairment charged to income for the years ended 31 December 2012, 2011, 2010, 2009 and
2008 as shown in (A), the table on page 133 relating to Movements in provisions for impairment of loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within disposal groups and
non-current assets held for sale), with that shown in (B), AIB Groups Consolidated statement of income.  2012
 m






2011  m






2010  m






2009  m






2008  m(A)Net provision movement


2,438







7,889







6,168







5,361







1,833Recoveries of loans previously charged off


(4
)






(4
)






(48
)






(6
)






(11
)Total charged to income


2,434







7,885







6,120







5,355







1,822(B)Provisions for impairment


2,434







7,885







6,120







5,355







1,822 The following table sets out the provisions charged to income and net loans charged off as a percentage of average loans for the years
ended 31 December 2012, 2011, 2010, 2009 and 2008. The 2010 and 2009 figures include provisions for loans and receivables held for sale to NAMA and loans and receivables included within discontinued operations. The 2011 figures include the
provision charge for loans and receivables held for sale to NAMA.  2012%






2011%






2010%






2009%






2008%Total provisions charged to income


2.57







7.33







4.97







4.05







1.37Net loans charged off


0.71







0.71







0.62







0.40







0.12 Commentary on provisions for impairment in 2012 The following commentary includes provisions for loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within
disposal groups and non current assets held for sale.). The provision for impairment charge to income on loans and receivables of  2,434 million or 2.57% of average advances for the year ended 31 December 2012 compared with 
7,885 million 7.33% of average advances at 31 December 2011. The significant reduction in the provision for impairment in the year of  5,451 million reflects the slowdown in the pace of
cases downgraded to impaired status requiring provision during 2012 at 18% in 2012 compared with 105% in 2011. The provision for impairment in 2012 was also impacted by the release of IBNR provisions of
 1,322 million compared with a charge of  179 million in 2011. The movement in IBNR provisions of  1,322 million was due to the level
of specific provisions raised during 2012 which had largely been provided in IBNR provisions at 31 December 2011, based on managements view of the incurred loss inherent in the portfolio at that time, as evidenced by the level of arrears,
requests for forbearance and vulnerable loans. The portfolios most impacted were the property and construction portfolio where the release was  659 million due in particular to the level of specific
provisions raised in 2012 in the property investment sub-sector, and  369 million for the residential mortgage portfolio which largely resulted from specific provisions being taken during the year,
particularly for mortgages in forbearance. IBNR provisions were reduced by  205 million,  84 million and
 5 million in the SME/other commercial, other personal and corporate portfolios respectively. Since all eligible
loans have now transferred to NAMA there was no provision charge in 2012 compared to  87 million in 2011. Ireland The impairment charge was  1,895 million and included a specific charge of  3,014 million and a release of IBNR of 1,119 million.
The charge was split  536 million relating to PBB;  1,130 million for CICB; and  229 million for
EBS. Included in the PBB charge of  536 million was a specific
provision charge of  1,120 million, with  629 million or 56% relating to residential mortgage loans reflecting the increased level of arrears due to
pressure on borrowers caused by continued high unemployment and reduced incomes. A further  135 million (12%) of the specific charge related to loans in the property and construction sector,
influenced by a continued low level of activity.  175 million or 16% of the specific charge was for consumer loans and the remaining  181 million
related to SME/other commercial borrowers who are highly dependent on the Irish economy which remained weak throughout 2012. There was a release of IBNR provision of  585 million in 2012 of which  311 million related to the residential mortgage portfolio where specific provisions were raised for cases, particularly those in forbearance, which had been








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3.1 Credit risk  Analysis of credit risk  5 year summaries

Commentary on
provisions for impairment in 2012(continued)

Ireland






allocated IBNR provisions at December 2011 with the remaining spread across the non-mortgage portfolios largely in the
consumer, distribution (includes hotels, licensed premises, retail) and property sectors. The provision for impairment in CICB market segment of  1,130 million included a specific charge of  1,714 million and a release of IBNR provision of  584 million. The key elements of the specific provision charge related to: (i) property loans, where the charge was  901 million or 53% of the specific
charge reflecting the impact of the continuing lack of activity in this sector; and (ii)  349 million or 20% related to the distribution and other services sectors which continued to be affected
by reduced consumer spending as a result of budgetary cuts and lower incomes and  268 million or 16% related to buy-to-let mortgages influenced by an increasing arrears profile due in part to high
levels of unemployment. The provision charge also included a release of IBNR provisions of  584 million of which  476 million related to the property
sector where IBNR provisions had been raised at year end December 2011 to take account of continued pressure on rental cash flows and uncertainty over the timing of a recovery in this sector which have now been reflected in specific provisions. At
31 December 2011, IBNR provisions were set aside for the loss on non-impaired mortgages in the forbearance book and specific provisions were raised for these where relevant in 2012 which resulted in a reduction of
 98 million IBNR provisions in this portfolio. The IBNR stock of provisions (statement of financial position) was  528 million,  239 million of which has been allocated to the property portfolio,  141 million to SME/commercial portfolios which have been impacted by reduced consumer
demand as a result of continued high unemployment and lower disposable incomes and  77 million for large borrower connections in the corporate portfolio with the remaining  71 million allocated to residential mortgages and consumer portfolios. The impairment provision in EBS of  229 million related to residential mortgages,  237 million for the owner-occupier sector in Ireland,  6 million for the buy-to-let portfolio and a reduction of IBNR provisions of  14 million provision in the property investment sub-sector. United Kingdom The impairment charge in the United Kingdom was  539 million compared with  1,318 million in 2011 (excluding
 51 million relating to NAMA) and included  331 million relating to AIB Bank UK,  200 million
relating to CICB customers and  8 million to PBB customers. In AIB Bank UK, the majority of the provision for
impairment related to borrowers in the property and construction sector ( 209 million) reflecting the continued pressure on this sector, in both the land
and development and property investment sub-sectors and while there have been signs of improvement in prime markets, such as London and the South East, the secondary markets still remain relatively illiquid. There was a release of  193 million IBNR provisions in the AIB Bank UK which reflected lower than anticipated loss rates in the low start mortgage and land and development property exposures in FTB and interest only
property and business loans in AIB GB. The statement of financial position IBNR provisions was  244 million at 31 December 2012 and was allocated to the following portfolios:  117 million to the property portfolio,  73 million in relation to the residential mortgage portfolio and
 55 million to SME/other commercial and consumer portfolios. The impairment charge in CICB of  200 million related primarily to large corporates in the property, and transport sectors. The statement of financial position IBNR provisions was  21 million at 31 December 2012. United States The impairment charge was Nil compared with  25 million to December
2011. The reduction is due to a smaller book as a result of disposals under the deleveraging programme.








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3.1 Credit risk  Analysis of credit risk  5 year summaries Commentary on provisions for impairment in 2011 The following commentary
includes provisions for loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within disposal groups and non current assets held for sale. It includes the provision for impairment raised in
the EBS for the six months since it was acquired by AIB in July 2011). The provision for impairment for loans and receivables of  7,885 million or 7.33% of average loans for the year ended 31 December 2011 was  1,765 million
higher than in 2010 ( 6,120 million 4.97% of average loans) and was impacted by the continuing economic difficulties being experienced, particularly in Ireland. The 2011 provision included  87 million relating to loans and
receivables held for sale to NAMA compared with  1,497 million in 2010. The remaining non-NAMA charge of  7,798 million (7.32% of average advances) has increased by  3,175 million since December 2010 and
comprised  7,619 million in specific provisions (2010:  3,318 million) and  179 million in IBNR
provisions (2010:  1,305 million). 77% of the increase in provisions related to business in Ireland with a further 25% in the UK. Ireland The provision for impairment of  6,455 million included a charge of  36 million relating to loans held for sale to NAMA. The non-NAMA
charge was  6,419 million and included a specific charge of  6,479 million and a release of IBNR of
 60 million. The charge was split  1,426 million relating to PBB,  4,670 million for CICB and  323 million for EBS (for six months to December 2011). Included in the PBB charge of  1,426 million was a specific provision charge of  936 million, with
 392 million or 42% relating to residential mortgage loans reflecting the increased level of arrears due to pressure on borrowers caused by unemployment and reduced incomes. A further  166 million (18%) of the specific charge related to loans in the property sector, influenced by a continued lack of activity in that sector. 
184 million or 20% of the specific charge was for consumer loans and the remaining  194 million related to SME/commercial loans. There was an IBNR provision of
 490 million raised in 2011.  311 million of this charge was allocated to the residential mortgage portfolio based on the increasing arrears profile
and a large proportion was set aside for non-impaired forbearance cases. The IBNR provision charge has been allocated to the following portfolios:  311 million to residential mortgages (statement of
financial position of  527 million), which reflects recent provision experience, the level of arrears (including > 90 days past due but not impaired), the level of requests for forbearance and level of
vulnerable loans (i.e. one notch above impaired).  179 million of the provision charge has been allocated to non-mortgage portfolios (statement of financial position of
 390 million), mostly in the distribution sector (includes hotels, licensed premises, retail). The non-NAMA
provision for impairment in CICB market segment of  4,670 million included a specific charge of
 5,071 million, and a release of IBNR provision of  401 million. While there have been increased provision charges across most sectors, the key elements
of the non-NAMA specific provision charge related to: (i) property loans, where the charge was  2,933 million or 58% of the specific charge reflecting the impact of the continuing lack of
activity in this sector; and (ii)  822 million or 16% related to the distribution sector which has been affected by reduced consumer spending and 
515 million or 10% related to buy-to-let mortgages influenced by pressure on sponsor affordability and further declines in house prices. The IBNR provision of  401 million reflected the release
of IBNR provisions which had been raised at year end December 2010 based on the level of requests for restructure and the uncertainty over true peak to trough asset price declines which have now been reflected in specific provisions, offset by the
raising of IBNR provisions based on managements view of incurred loss in the portfolio at the reporting date. The IBNR stock of provisions (statement of financial position) of  1,110 million is
based on managements estimate of incurred loss in the book.  714 million of the statement of financial position has been allocated to the property portfolio which reflects the impact of
continued pressure on rental cash flows and uncertainty over the timing of a recovery in this sector.  136 million has been allocated to the residential mortgage portfolio based on recent provision
experience and heightened levels of forbearance requests. The remaining  260 million has been allocated to SME/commercial portfolios which have been impacted by reduced consumer demand as a result of
continued high unemployment and lower disposable incomes. The provision for impairment in EBS for the six months to 31 December 2011 was  323 million of which 94% related to residential mortgages in Ireland. The statement of financial position provisions amounted to  209 million in relation to property loans and  740 million for residential mortgages reflecting the pressure on affordability resulting in higher levels
of arrears. United Kingdom The provision for impairment in the
United Kingdom was  1,369 million and included a provision of  51 million relating to loans held for
sale to NAMA compared with  152 million in 2010. The non-NAMA charge of  1,318 million included
 1,087 million relating to AIB UK and  231 million relating to CICB customers. In AIB UK,  646 million or 59% of the charge related to borrowers in
the property sector reflecting the continued pressure on this sector, particularly in the land and development sub-sector.  212 million of the AIB UK charge was in IBNR provisions which included
provisions raised in respect of managements view of impairment in the low start mortgage and land and development property








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3.1 Credit risk  Analysis of credit risk  5 year summaries

Commentary on
provisions for impairment in 2011(continued)

United Kingdom






exposures in FTB and interest only property and business loans in AIB GB. The levels of mortgages in forbearance and 90
days past due but not impaired were also taken into consideration when determining the appropriate level of IBNR stock. The statement of financial position IBNR provisions was
 427 million at 31 December 2011 and was allocated to the following portfolios:  207 million to
the property portfolio,  100 million in relation to the residential mortgage portfolio and  120 million to other SME/commercial and consumer
portfolios. The charge in CICB of  231 million related primarily
to large corporates in the manufacturing, property, distribution, and other services sectors and the statement of financial position was  30 million across these sectors. United States of America The provision for impairment decreased
compared with 2010 by  4 million to  25 million and relate to loans predominantly in the property
sector (62%) with provisions also in the energy, manufacturing, distribution and other services sectors impacted by a reducing book. Rest of World The provision of  12 million relates to loans in the
property and other services sectors in the CICB market segment. Disposal groups The impairment charge was  24 million which related to the 3 months to
31 March 2011 in the BZWBK business. Additional information on provisions for impairment The following table presents additional information with respect to the statement of financial position provisions as at 31 December 2012, 2011, 2010, 2009 and 2008.
The 2010 and 2009 figures include provisions for impairment on loans and receivables held for sale to NAMA and the 2010 figure also includes provisions for impairment on loans and receivables included within discontinued operations.  2012




2011




2010




2009




2008%




%




%




%




%Provisions as a percentage of total loans, less unearned income, at end of periodSpecific provisions


16.90





12.42





5.40





4.46





0.87IBNR provisions


1.49





2.72





2.23





1.04





0.8718.39





15.14





7.63





5.50





1.74 Provisions are raised as outlined on pages 75  78. The increase in provisions from 15.14% to 18.39% reflects the impact that the continuing high level of unemployment, low levels of activity in the property sector with
further property price reductions and ongoing austerity measures is having on our borrowers ability to repay facilities, particularly in Ireland. Specific provisions as a percentage of loans increased from 12.42% to 16.90% and are allocated to
individual impaired loans ( 29,416 million up from  24,833 million for 2011). The IBNR provisions as a percentage of loans decreased from 2.72% to 1.49% at December 2012. The reduction reflects a release of
 1,322 million in the year as a result of:     (i)
IBNR provisions raised in previous periods which have now been reflected in specific provisions;     (ii)
improved credit management processes; and     (iii)
independent reviews of certain higher risk portfolios which helped inform managements view of the incurred loss remaining in the performing book.








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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Loans charged off and recoveries of previously charged off loans The following
table presents an analysis of loans charged off and recoveries of previously charged off loans for the years ended 31 December 2012, 2011, 2010, 2009, and 2008. This table includes loans and receivables to customers of continuing operations,
loans and receivables held for sale to NAMA, and loans and receivables included within disposal groups and non-current assets held for sale(1).  Loans charged off


Recoveries of loanspreviously charged off2012 m


2011 m


2010 m


2009 m


2008   m


2012 m


2011 m


2010 m


2009 m


2008 mIRELANDAgriculture


5.2



5.2



8.2



1.7



1.7







0.1



0.7



0.2



0.7Energy


2.2



2.4



1.3



8.1











0.2











Manufacturing


23.3



64.9



31.7



38.3



1.2



0.1















Property and construction


112.2



152.3



202.2



135.6



35.1



0.2







0.1







Distribution


44.7



67.9



58.0



15.3



7.2



















2.9Transport


5.6



2.7



5.2



1.5



1.5



















Financial


27.2



23.1



31.0



26.7



0.1



















2.2Other services


29.9



48.0



35.5



5.8



5.7



0.1



0.3



0.1







Personal  Residential mortgages


50.1



19.4



24.2



9.5



2.4











0.1







0.1 Other


93.4



91.4



76.5



28.9



9.6



0.7



0.6



1.2



0.6



1.0Lease financing


5.6



3.8



16.2



15.6



3.6



0.1



0.2



0.3



0.2



0.3399.4



481.1



490.0



287.0



68.1



1.2



1.4



2.5



1.0



7.2UNITED KINGDOMAgriculture


0.1



0.2



0.1



0.1



0.1



















Energy






































Manufacturing


21.9



25.2



11.8



5.7



15.5







0.4











0.2Property and construction


97.9



117.0



46.7



40.9



33.4



0.6



0.3



37.9







0.1Distribution


53.1



34.9



43.1



63.2



19.4



0.2



0.2



0.3



0.2



0.1Transport


11.2



0.3



29.7



0.3



0.3







0.2











Financial


4.3



0.3



54.0



0.5



0.1







0.1











Other services


65.4



63.0



42.0



33.6



5.5



0.3



0.2



0.3



0.1



0.1Personal  Residential mortgages


6.0



4.3



2.6



0.5



0.3



















 Other


9.2



7.3



5.9



4.0



3.8



0.9



0.6



0.4



0.2



0.3269.1



252.5



235.9



148.8



78.4



2.0



2.0



38.9



0.5



0.8UNITED STATES OF AMERICAEnergy










0.3



8.2







0.2



0.2



0.5







Manufacturing


0.9



0.9



2.1



1.4















0.1







Property and construction






22.8



7.5



5.3



0.9



















Distribution






5.0



1.4



























Transport






6.8































Other services


0.6



2.1



9.1



























1.5



37.6



20.4



14.9



0.9



0.2



0.2



0.6







POLAND(1)






2.2



51.8



57.0



18.7











5.5



4.1



2.9REST OF WORLD


2.7



28.6



14.7



12.3







0.1







0.3







TOTAL


672.7



802.0



812.8



520.0



166.1



3.5



3.6



47.8



5.6



10.9 (1)For 2010, Poland is classified as a discontinued
operation, all other amounts relate to continuing operations.








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3.1 Credit risk  Analysis of credit risk  5 year summaries(continued) Loans charged off and recoveries of previously charged off loans(continued) Net loans charged off 2012 The following commentary includes loans
and receivables (including loans and receivables within disposal groups and non current assets held for sale). Group net loans charged off
at 0.71% ( 669 million) of average advances for the year to December 2012 compared with 0.71% or 
798 million at December 2011. Ireland net loans charged off were
 398 million and were split  171 million in PBB and 
227 million in CICB market segments. 50% of the net charge-offs in PBB related to loans in the other personal sector with a further 31% to the property and residential mortgage sectors. In CICB, the net-charge offs were spread across a number
of sectors, primarily property  95 million, distribution  35 million, manufacturing 
20 million, financial  27 million and other services  21 million with the remaining in residential mortgages and the other personal sector. United Kingdom net loans charged off were  267
million,  109 million of which related to the CICB market segment with the main net charge-offs occurring in other services  51 million, distribution  26 million, property  16 million and manufacturing  15 million and transport
 1 million sectors. In AIB Bank UK, the net charge-offs were  158 million mainly in the property
 81 million, distribution  28 million, other services  14 million and other personal  9 million sectors. United States net loans charged off were  1 million and related to borrowers in the manufacturing and other services sectors. Rest of World net loans charged off were 
3 million relating to residential mortgages in AmCredit. Net loans charged off 2011 The following commentary includes loans and receivables (including loans and receivables held for sale to NAMA and loans and receivables included within disposal
groups and non current assets held for sale. It also includes the EBS which was acquired by AIB on 1 July 2011). Group net loans
charged off at 0.71% ( 798 million) of average loans for the year to December 2011 compared with 0.62% or
 765 million at December 2010. Ireland net loans charged off were  480 million and were split  300 million in PBB and 
180 million in CICB market segments. 38% of the net charge offs in PBB were related to the property sector. The other main sectors where net charge offs occurred were the distribution, other services, residential mortgage and other personal
sectors. In CICB the net charge offs were spread across a number of sectors, primarily in manufacturing, property, distribution, financial and other services. United Kingdom net loans charged off were 
250 million,  150 million of which related to the CICB market segment with the main net charge offs occurring in the manufacturing, property, distribution, and other services sectors. In AIB UK,
the net charge offs were  101 million mainly in the property, distribution and other services sectors. United
States net loans charged off were  37 million and mainly related to borrowers in the property sector. Rest of World net loans charged off were 
29 million with  4 million relating to residential mortgages in AmCredit and the remaining arising in the other services sector. Disposal Groups net loans charged off were 
2 million in the lease financing sector.








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3.1 Credit risk  Analysis of credit risk  5 year summaries Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity The following tables analyse gross loans and receivables to customers by contractual residual maturity and interest rate sensitivity. Overdrafts, which in the aggregate
represent approximately 2% of the portfolio at 31 December 2012, are classified as repayable within one year. Approximately 9% of AIB Groups loan portfolio is provided on a fixed rate basis. Fixed rate loans are defined as those loans for
which the interest rate is fixed for the full term of the loan. The interest rate risk exposure is managed within agreed policy parameters. The analysis of loans
and receivables to customers for both NAMA and disposal groups and non-current assets held for sale are shown separately below. Loans and receivables to
customers 2012Fixedrate




Variablerate




Total


Within 1year


After 1 yearbut within 5years




After 5years




Total m




 m




 m


 m


 m




 m




 mIreland


6,933





66,505





73,438



31,465



5,582





36,391





73,438United Kingdom


905





14,781





15,686



7,484



2,596





5,606





15,686United States of America


16





257





273



106



141





26





273Total loans by maturity


7,854





81,543





89,397



39,055



8,319





42,023





89,3972011Fixed
rate




Variablerate




Total


Within 1year


After 1 yearbut within 5years




After 5years




Total m




 m




 m


 m


 m




 m




 mIreland


8,339





70,631





78,970



24,711



8,342





45,917





78,970United Kingdom


1,157





17,007





18,164



7,443



3,905





6,816





18,164United States of America


49





309





358



73



220





65





358Total loans by maturity


9,545





87,947





97,492



32,227



12,467





52,798





97,4922010Fixedrate




Variablerate




Total


Within 1year


After 1 yearbut within 5years




After 5years




Total m




 m




 m


 m


 m




 m




 mIreland


8,136





61,638





69,774



20,490



12,732





36,552





69,774United Kingdom


2,430





18,664





21,094



7,580



5,604





7,910





21,094United States of America


169





1,799





1,968



740



1,058





170





1,968Rest of World


82





886





968



295



538





135





968Total loans by maturity


10,817





82,987





93,804



29,105



19,932





44,767





93,8042009Fixedrate




Variablerate




Total


Within 1
year


After 1 yearbut within 5years




After 5years




Total m




 m




 m


 m


 m




 m




 mIreland


9,463





62,680





72,143



19,143



21,516





31,484





72,143United Kingdom


914





21,175





22,089



6,391



6,606





9,092





22,089United States of America


147





2,394





2,541



1,125



1,204





212





2,541Poland(1)


1,245





7,483





8,728



3,150



3,467





2,111





8,728Rest of World


90





1,016





1,106



107



799





200





1,106Total loans by maturity


11,859





94,748





106,607



29,916



33,592





43,099





106,607 (1)See discontinued operations (note 18).








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3.1 Credit risk  Analysis of credit risk  5 year summaries(continued) Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity(continued) Loans and receivables to customers 2008Fixed




Variable




Total


Within 1


After 1 year




After 5




Totalrate




rate







year


but within 5




yearsyears m




 m




 m


 m


 m




 m




 mIreland


8,245





84,417





92,662



36,457



23,457





32,748





92,662United Kingdom


2,025





24,047





26,072



8,030



7,587





10,455





26,072United States of America


430





2,948





3,378



810



2,151





417





3,378Poland(1)


1,022





7,666





8,688



2,915



3,476





2,297





8,688Rest of World


8





1,355





1,363



62



701





600





1,363Total loans by maturity


11,730





120,433





132,163



48,274



37,372





46,517





132,163(1)See discontinued
operations (Note 18).  Loans and receivables held for sale to NAMA for the years ended
31 December 2010 and 20092010Fixed




Variable




Total


Within 1


After 1 year




After 5




Totalrate




rate







year


but within 5




yearsyears m




 m




 m


 m


 m




 m




 mIreland


32





701





733



568



90





75





733United Kingdom


16





1,499





1,515



1,038



348





129





1,515United States of America


































Total loans by maturity


48





2,200





2,248



1,606



438





204





2,2482009After 1 yearFixed




Variable







Within 1


but within 5




After 5rate




rate




Total


year


years




years




Total m




 m




 m


 m


 m




 m




 mIreland


444





19,000





19,444



16,528



1,812





1,104





19,444United Kingdom








3,722





3,722



2,433



679





610





3,722United States of America








29





29



29















29Total loans by maturity


444





22,751





23,195



18,990



2,491





1,714





23,195Loans and receivables held within disposal groups and
non-current assets held for sale for the years ended 31 December 2012, 2011 and 20102012After 1 yearFixed




Variable







Within 1


but within 5




After 5rate




rate




Total


year


years




years




Total m




 m




 m


 m


 m




 m




 mIreland








97





97



14



8





75





97United Kingdom








378





378



240



18





120





378Total loans by maturity








475





475



254



26





195





4752011After 1 yearFixed




Variable







Within 1


but within 5




After 5rate




rate




Total


year


years




years




Total m




 m




 m


 m


 m




 m




 mIreland








531





531



79



426





26





531United Kingdom








45





45







11





34





45United States of America


39





191





230



78



115





37





230Rest of World


80





309





389



141



119





129





389Total loans by maturity


119





1,076





1,195



298



671





226





1,195








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|LOGO |  | Risk management  3. Individual risk types |  | 






3.1 Credit risk  Analysis of credit risk  5 year summaries Analysis of loans and receivables to customers by contractual residual maturity and interest rate sensitivity(continued) Loans and receivables held within disposal groups and non-current assets held for sale for the years ended 31 December 2012, 2011 and 2010  2010Fixedrate




Variablerate




Total


Within 1year




After 1 yearbut within 5years




After 5
years




Total m




 m




 m


 m




 m




 m




 mPoland


1,209





7,432





8,641



3,155





3,334





2,152





8,641Rest of World








74





74















74





74Total loans by maturity


1,209





7,506





8,715



3,155





3,334





2,226





8,715 Analysis of loans and receivables held for sale to NAMA by geography and industry sector The following table analyses loans and receivables held for sale to NAMA by geography and industry sector at 31 December 2010 and 31 December 2009 showing:
(i) gross loans; (ii) specific provisions for impairment; and (iii) impaired loans. There were no loans held for sale to NAMA at 31 December 2012 or 31 December 2011.  2010


2009Loans andreceivables


Specificprovisions forimpairment


Impaired Loans


Loans andreceivables


Specificprovisions forimpairment


Impairedloans m


 m


 m


 m


 m


 mIRELANDAgriculture














24



5



15Energy














64



8



23Manufacturing














37



3



10Property and construction


567



38



167



18,055



3,245



9,684Distribution


43



8



36



602



79



228Transport


1











19







Financial














16







1Other services


27



3



15



200



11



33Personal  Residential mortgages


86



1



37



138



6



17 Other


8



2



5



289



35



103UNITED KINGDOMAgriculture














1







Energy


3











4







Manufacturing


15











16







Property and construction


1,351



176



450



3,523



189



833Distribution


92







13



85







Financial


27











20



2



3Other services


17



1



15



57



1



6Personal  Residential mortgages














6







 Other


11







3



10







1UNITED STATESProperty and construction














29







Total


2,248
(1)


229
(2)


741



23,195
(1)


3,584
(2)


10,957 (1) 1,919 million net of provisions of  329 million (2009:  19,030 million net of provisions of  4,165 million). (2)Total provisions of  329 million including IBNR of  100 million (2009: total provisions of
 4,165 million including IBNR of  581 million).








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3.1 Credit risk  Analysis of credit risk  5 year summaries Cross-border outstandings Cross-border outstandings, which exclude finance
provided within AIB Group, are based on the country of domicile of the borrower and comprise placings with banks and money at call and short notice, loans to customers (including those classified as held for sale to NAMA in 2009 and 2010 and those
held within discontinued operations in 2010), finance lease receivables and installment credit, acceptances and other monetary assets, including non-local currency claims of overseas offices on local residents. AIB Group monitors geographic
breakdown based on the country of the borrower and the guarantor of ultimate risk. Cross-border outstandings exceeding 1% of total assets are shown in the following table. In addition, the Groups exposure to certain other EU countries are
shown at 31 December 2012, 2011, 2010, 2009 and 2008. As % of


Total


Banks and


Government


Commercial,total





other


and


industrialassets(1)





financial


official


and otherinstitutions


institutions


privatesector m


 m


 m


 m31 December 2012United Kingdom


1.5



1,877



589



575



713United States of America


1.2



1,447



93



28



1,326France


1.6



1,950



485



715



750Spain


1.3



1,616



474







1,142Germany


0.6



781



294



306



181Italy


0.2



230







221



9Portugal


0.1



149



21



25



103Greece


















31 December 2011United Kingdom


1.8



2,492



684



572



1,236United States of America


1.6



2,199



50



307



1,842France


1.4



1,925



447



731



747Spain


1.3



1,824



575



30



1,219Germany


0.8



1,118



630



277



211Italy


0.2



287







175



112Portugal


0.2



250



54



98



98Greece


0.1



52







16



3631 December 2010United Kingdom


5.7



8,313



730



870



6,713United States of America


3.7



5,329



403



658



4,268Spain


2.0



2,941



900



340



1,701France


1.7



2,527



705



989



833Germany


1.2



1,760



892



361



507Italy


1.0



1,428



405



824



199Portugal


0.4



530



206



246



78Greece


0.1



119



67



41



1131 December 2009United States of America


4.7



8,193



1,127



1,303



5,763United Kingdom


2.9



5,093



1,186



695



3,212Spain


2.1



3,610



1,585



117



1,908France


1.7



3,013



1,974



480



559Germany


1.2



2,065



1,300



294



471Italy


0.9



1,643



665



625



353Portugal


0.3



469



138



201



130Greece


0.1



158







42



11631 December 2008United Kingdom


5.1



9,362



1,776



1,456



6,130United States of America


5.0



9,052



596



1,689



6,767Germany


2.2



3,984



2,458



743



783France


1.6



2,973



1,603



662



708Spain


2.5



4,576



2,180



223



2,173Italy


1.1



1,929



730



652



547 (1)Assets, consisting of total assets as reported in
the consolidated statement of financial position, totalled  122,516 million at 31 December 2012 (2011:
 136,651 million; 2010:  145,222 million; 2009:  174,314 million; 2008:  182,174 million). At 31 December 2012 cross-border outstandings to borrowers in the Netherlands amounted to 0.7%
and Australia 0.2%.








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3.1 Credit risk - Financial investments available for sale The following table analyses the carrying value (fair value) of financial investments available for sale by major classifications together with the unrealised gains and
losses at 31 December 2012 and 31 December 2011:  2012










2011Fair


Unrealised


Unrealised




Fair


Unrealised


Unrealisedvalue


gross gains


gross losses




value


gross gains


gross lossesDebt securities*



 m


 m


 m




 m


 m


 mIrish Government securities




7,588



608



(1
)




5,217



40



(531)Euro government securities




1,754



153



(4
)




1,860



102



(62)Non Euro government securities




712



95









1,270



207



(3)Supranational banks and government agencies




1,682



55









1,147



10



(1)Collateralised mortgage obligations




22







(6
)




509







(12)Other asset backed securities




920



1



(140
)




1,210







(353)Euro bank securities




3,070



176



(11
)




3,055



43



(77)Non Euro bank securities




161



3



(5
)




476



4



(12)Euro corporate securities




87



6



(3
)




110



4



(6)Non Euro corporate securities




193



17









279



15



(5)Other investments




12













12







Total debt securities




16,201



1,114



(170
)




15,145



425



(1,062)Equity securitiesEquity securities  NAMA subordinated bonds




47













132







Equity securities  other




96



16



(10
)




112



18



(24)Total financial investments available for sale




16,344



1,130



(180
)




15,389



443



(1,086) The following tables analyse the available for sale portfolio by geography at 31 December 2012 and 31 December 2011:  2012










2011Irish


Euro


Non Euro




Irish


Euro


Non EuroGovernment


governments


governments




Government


governments


governmentsGovernment securities*

 m


 m


 m




 m


 m


 mRepublic of Ireland


7,588













5,217







United Kingdom










621













1,146Italy






221













175



Austria






160













179



Spain




















30



France






683













699



Germany






281













277



Greece




















16



Portugal






25













98



Netherlands






358













341



Rest of World






26



91









45



1247,588



1,754



712





5,217



1,860



1,270








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|    |  | *Forms an integral part of the audited financial statements
|144 |  |                                                            



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3.1 Credit risk - Financial investments available for sale(continued)  2012




2011Total




TotalAsset backed securities*















 m




 mRepublic of Ireland


















37





34United Kingdom


















95





153United States of America


















84





585Italy
























89Spain


















545





636Greece
























32Rest of World


















181





190942





1,7192012











2011Euro




Non Euro






Euro




Non EuroBank securities*



 m




 m






 m




 mRepublic of Ireland




903





35







622





34United Kingdom




425





10







316





127United States of America




35













32





3Australia


















36





20Italy
























Austria




21













70





18France




464













323





Germany




75





6







481





97Portugal




20













54





Netherlands




344













266





25Spain




441













569





6Sweden




24





110







6





143Belgium




52













11





Denmark




35













88





Rest of World




231













181





33,070





161







3,055





476 The cumulative credit to available for sale securities reserves relating to bank securities is  163 million (2011: charge of  42 million) which is gross of hedging and taxation.









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3.1 Credit risk - Financial investments available for sale(continued) Debt securities Available for sale (AFS) debt securities have
increased from a fair value of  15.1 billion at 31 December 2011 to  16.2 billion at 31 December
2012. Sales and maturities of  5.6 billion were offset by purchases of  5.1 billion and an increase in fair value of
 1.6 billion. The increase in fair value was principally due to an improvement in the market values of Irish Government securities (+  1.1billion) however,
improvements were also observed in most markets. There are no specific impairment provisions held against the AFS debt securities but an incurred but not reported
(IBNR) provision of  10 million is held against the remaining bank subordinated debt portfolio of
 103 million nominal and an IBNR provision of  50 million is held against the remaining European asset backed securities holdings of  900 million. The portfolio remains materially investment grade, with 26% rated AAA (2011 35%); 11% rated AA (2011 10%); 7%
rated A (2011 11%); and 54% rated BBB (2011 41%). The Irish Government securities position increased from  5.2 billion at 31 December 2011 to  7.6 billion at 31 December 2012, including (net) new purchases of 
1.3 billion for the purpose of increased capital investment, and fair value gains of  1.1 billion. Equity securities NAMA subordinated bonds are included within available for sale equity securities. The fair value of these bonds at 31 December 2012 was  47 million (against a nominal holding of  471 million) compared with the 31 December 2011 fair value of  132 million (against a nominal holding of  478 million). An impairment provision of  82 million was made in
the year to 31 December 2012. Asset backed securities Asset backed
securities of  0.9 billion principally relate to residential mortgage backed securities of  0.8 billion (31
December 2011:  1.1 billion). An analysis of these securities by country on page 145 includes collateralised mortgage obligations of  22 million (31
December 2011:  509 million). Bank securities by geography At 31 December 2012, the bank bond fair value of  3.2 billion (31
December 2011:  3.5 billion) included  1.7 billion of covered bonds (31 December 2011:  1.1 billion);  0.8 billion of government guaranteed senior bank debt (31 December 2011:  0.9 billion);  0.6 billion of senior
unsecured bank debt (31 December 2011:  1.4 billion); and  0.1 billion of subordinated bank debt (31 December 2011:
 0.1 billion). Republic of Ireland The fair value of Irish debt securities in the available for sale category amounted to
 8.6 billion (31 December 2011:  5.9 billion) at 31 December 2012 and consisted of sovereign debt  7.6 billion (31 December 2011:  5.2 billion); government guaranteed senior bank debt of  0.7 billion (31 December 2011:
 0.5 billion); covered bonds of  0.2 billion (31 December 2011:  0.1 billion) and residential mortgage backed
securities of  37 million (31 December 2011:  44 million). In
addition to Irish Government securities outlined above, NAMA senior debt amounting to  17.4 billion (31 December 2011:
 19.9 billion), which is guaranteed by the Irish Government, is included within loans and receivables to customers (note 29). Italy The fair value of Italian debt securities at 31 December
2012 was  223 million (31 December 2011:  269 million) and included sovereign debt of  221 million (2011:  175 million); asset backed securities of Nil (31 December 2011:  89 million) and corporate
debt of  2 million (31 December 2011:  5 million). Portugal The fair value of Portuguese debt securities at 31 December 2012 was
 131 million (31 December 2011:  231 million). It comprised sovereign debt of  25 million (31 December 2011:  98 million); asset backed securities of  83 million (31 December 2011:  79 million); senior bank debt of  20 million (31 December 2011:  54 million); and corporate debt of  3 million. Spain The fair
value of Spanish debt securities at 31 December 2012 was  1 billion and included asset backed securities of
 0.5 billion; and senior bank bonds of  0.5 billion. The fair value at 31 December 2011 amounting to  1.2
billion comprised of asset backed securities of  0.6 billion; covered bonds of  0.5 billion, subordinated bank debt of
 37 million; sovereign debt of  30 million; and senior bank debt of  6 million. The asset backed securities at 31 December 2012 were all residential mortgage backed securities which had been rated AAA at origination. The 31 December 2012
ratings profile was: A 17%; AA 69%; BBB 10%; BB 1%; and B 3%. The overall weighted average market bid price for the portfolio was 78.19 (31 December 2011: 71.45). In addition, Spanish debt of  0.5 billion (31 December 2011:  0.6 billion) is included within loans and receivables to customers (note 29).








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3.2 Liquidity risk* The objective of liquidity management is to ensure that, at all times, the Group holds sufficient funds to meet its contracted and contingent commitments to customers and
counterparties at an economic price. Risk identification and assessment Liquidity risk is assessed by modelling the net cash outflows of the Group over a series of maturity bands. Behavioural assumptions are applied to those liabilities whose
contractual repayment dates are not reflective of their inherent stability. Those net cash outflows are compared against the Groups stock of liquid assets to determine, within each maturity band, the adequacy of the Groups liquidity
position. Furthermore, for the Liquidity Coverage Ratio LCR as defined by Basel III, the unencumbered stock of high quality liquid assets is compared against net cash outflows over the first 30 calendar days. Risk management and mitigation The Groups liquidity management policy
aims to ensure that it has sufficient liquidity to meet its current requirements. In addition, it operates a funding strategy designed to anticipate additional funding requirements based upon projected balance sheet movements. The Group undertakes
liquidity stress testing and contingency planning to deal with unforeseen events. Stress tests include both firm specific and systemic risk events and a combination of both, at varying levels of severity. Stressed assumptions are applied to the
Groups liquidity buffer and liquidity risk drivers. These scenario events are reviewed in the context of the Groups liquidity contingency plan, which details corrective action options under various levels of stress events. The purpose of
these actions is to ensure the continued stability of the Groups liquidity position, within the Groups pre-defined liquidity risk tolerance levels. These results are reported to the Group Asset and Liability Committee (ALCo),
Leadership Team and Board, and to other committees if invoked under the Groups Liquidity Contingency Plan. The liquidity and funding requirements of the Group
are managed by the Treasury function. Euro and sterling represent the most important currencies to the Group from a liquidity and funding perspective. AIB is required to comply with the liquidity requirements of the Central Bank of Ireland and also
with the requirements of local regulators overseas which include regulatory restrictions on the transfer of liquidity among the Group. In the absence of normal market conditions and given the extent of support from the monetary authorities, the
Groups contingency liquidity management framework remains activated. Notwithstanding this, AIB improved its liquidity buffer during the course of 2012. The
principles behind the Groups liquidity management policy aim to ensure that the Group can at all times meet its obligations as they fall due at an economic price. The Group manages its liquidity in a number of ways: 

Firstly, through the active management of its liability maturity profile it aims to ensure a balanced spread of repayment obligations with a key focus on 0  8 day and 9 day  1 month time periods. Monitoring
ratios apply to periods in excess of 1 month; 

Secondly, the Group aims to maintain a stock of high quality liquid assets to meet its obligations as they fall due. Discounts are applied to these assets based upon their cash-equivalence and price sensitivity; and 

Finally, net outflows are monitored on a daily basis. AIBs liquidity position was in surplus to the regulatory ratios at all times during 2012. The Group endeavours to maintain a diversified funding base with an emphasis on high quality, stable customer deposit funding whilst maintaining an appropriate balance
between short term and long term funding sources. These customer deposits represent the largest source of funding for the Group, and the core retail franchises and accompanying deposit base in both Ireland and the UK provide a stable and reasonably
predictable source of funds. During the year, AIB decided to end its presence in the Offshore locations of Isle of Man and the Channel Islands. Since that decision, the deposit base in these locations has gradually been wound down, although the loss
of liquidity for AIB has been minimal, as the majority of the liquidity had been previously trapped off shore as a result of local regulations. Customer
accounts have increased by  3 billion in the full year 2012, notwithstanding outflows of  2 billion as a
result of the announced closure of AIBs operations in the Isle of Man and Channel Islands, and with management focus on reductions in the overall pricing of its deposits in both the Irish and UK markets. Strong growth was experienced across
all business areas during this period, as sentiment towards Ireland and Irish banks improved. The Irish Government Eligible Liabilities Guarantee (ELG)
scheme played an important role in underpinning the funding position of the Group, however, it is prepared for the withdrawal of the guarantee from 31 March 2013. Positive first steps were taken during 2012 in this regard with the Groups
quantum of covered liabilities decreasing as AIB Group (UK) plc withdrew from the scheme in August 2012. This withdrawal from the ELG scheme has had a negligible overall effect on deposit balances. Details of the ELG are included in note 63 to the
financial statements. The Group monitors and manages the funding support provided by its deposit base to its loan book through a series of measures including the
Basel III liquidity ratios, the LCR and Net Stable Funding Ratio (NSFR), pending their formal introduction as regulatory









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3.2 Liquidity risk*

Risk management and mitigation






standards. During 2012, a decision was taken by the Central Bank to replace the loan to deposit ratio (LDR) targets in favour of an advanced monitoring framework focusing on the Basel
III ratios. As a consequence of the deposit developments outlined above and the deleveraging that was achieved through asset sales and loan repayments, the
Groups LDR decreased from 136% at 31 December 2011 (138% including loans and receivables held for sale) to 115% at 31 December 2012 (115% including loans and receivables held for sale). The target for the LCR is 100% by January 2018,
(per latest Capital Requirements Directive proposals) with interim targets set from January 2015 and AIB is projected to be in compliance with these targets. The
Group has seen a significant improvement in its liquidity position over the course of 2012, despite the maturity of  4.5 billion in unsecured medium term
note (MTN) issuances during the year and with no access to replacement unsecured funding in the wholesale markets. This improvement has resulted from further progress on the deleveraging programme, increased deposit inflows and lower
collateral haircuts arising from the renewed market confidence experienced by Ireland during 2012. This has enabled the Group to cease using Own-Use Bank Bonds (OUBBs) and to reduce Central Bank funding significantly. At 31 December
2012, the Group availed of Central Bank funding amounting to  22 billion, reduced from  31 billion at 31 December 2011. Central Bank drawings include the
switch of  3 billion from short term operations into the 3 year Long-Term Refinancing Operations (LTROs) at 31 December 2011 and the switch of a further
 8.25 billion in March 2012. The Group continues to develop the capability to create collateral pools from its loan
assets aimed at market investors, as was evidenced by a successful Residential Mortgage Backed Securities (RMBS) issuance in May 2012 using AIB UK mortgages. In addition, AIB re-entered the secured wholesale term markets with an ACS
(covered bond) issuance in December 2012, and again, in January 2013. The Groups debt ratings as at 12 February 2013 for all debt/deposits not covered by
the ELG scheme are as follows: 

S&P long-term BB and short-term B; 

Fitch long-term BBB and short-term F2; and 

Moodys long-term Ba2 for deposits and Ba3 for senior unsecured debt and short-term Not Prime for deposits and senior unsecured debt. As a further indicator that the Irish economy is stabilising, Fitchs November 2012 revision of the outlook from negative to stable on the Groups Long
Term Issuer Default Rating was the first positive revision for AIB in almost four years. Risk monitoring and reporting In common with other areas of risk management, the Group operates a three lines of defence model. Risk monitoring and reporting is carried out in the first
line by Treasury ALM  Analysis, Reporting and Control (T-ALM ARC) which reports directly to the CFO. Second line assurance is provided by Financial Risk reporting to the CRO, and Group Internal Audit comprises the third line. The
liquidity position of AIB is measured and reported daily by T-ALM. Financial Risk are responsible for all monitoring and review of liquidity management in AIB. In addition to the regular Group ALCo, the monthly Executive Risk Committee
(ERC) and the Board Risk Committee (BRC) reporting on the liquidity and funding position of the Group, the Leadership Team and the Board are briefed on liquidity and funding on an on-going basis. Further information on
liquidity risk can be found in notes 60 and 61 to the financial statements. 3.3 Market risk* Market risk is the risk relating to the uncertainty of returns attributable to fluctuations in market factors. Where the uncertainty is expressed as a potential loss in
earnings or value, it represents a risk to the income and capital position of the Group. Market risk includes repricing risk, curve risk, basis risk, optionality risk, valuation risk and concentration risk. The Group is exposed to market risk
through the following risk factors: interest rates, foreign exchange, equity prices, inflation rates and credit spreads. The Group assumes market risk as a result
of its banking book and trading book activities. Interest rate risk in the banking book (IRRBB) is defined as the Groups sensitivity to earnings
volatility in its non-trading activity arising from movements in interest rates. It reflects a combination of interest rate risk arising from the retail, commercial and corporate operations and banking book positions maintained by the Groups
Treasury function. Non-trading interest rate risk in retail, commercial and corporate activities can arise from a variety of sources, including where those assets and liabilities and off-balance sheet instruments have different repricing dates. Credit spread risk in the banking book is the exposure of the Groups financial position to adverse movements in the credit spreads of bonds held in the available
for sale (AFS) securities portfolio. Credit spreads are defined as the difference between bond yields and








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3.3 Market risk*(continued)






interest rate swap rates of equivalent maturity. Changes in the credit spread impact the valuations of bonds held in the banking book and these fair value changes are recorded through the
Groups equity reserve. The AFS portfolio is the principal source of credit spread risk. The Group also assumes market risk through its trading book activities
which relate to all positions in financial instruments (principally derivatives) that are held with trading intent or in order to hedge positions held with trading intent. The Groups Treasury function is responsible for managing all trading
book activities which includes a mandate to trade on its own account in selected wholesale markets. The trading strategies employed by Treasury are desk and market specific with risk tolerances approved on an annual basis through the Groups
Risk Appetite Framework governance process. Risk identification and assessment It is the Groups policy that all market risk be centralised within Treasury. AIB employs a suite of metrics to estimate its market risk profile. IRRBB is a key risk
measure for non-trading portfolios, including the management of structural interest rate positions (e.g. capital investments and current account hedges, etc) and Treasurys banking book positions (e.g. securities investments, etc). In addition,
Value at Risk (VaR) is employed within the Treasury environment, particularly in the context of trading book portfolios, but also as a risk assessment tool for Treasurys banking book portfolios where it augments the IRRBB measures. IRRBB is calculated on the basis of establishing the repricing behaviour of each asset, liability and off-balance sheet product. For some products, the actual
interest repricing characteristics may differ from their contractual arrangements. In these cases, the repricing maturity is determined by the market interest rates that most closely fit the behaviour of the product interest rate. For non-interest
bearing current accounts, the repricing maturity is determined by the stability of the portfolio. The assumptions behind these repricing maturities and the stability levels of portfolios are reviewed periodically by Group ALCo. In quantifying Treasurys market risk profile, Treasurys risk measurement systems are configured to address all material risk factors. The principal risk
measurement methodology employed is based on an historical simulation application of the industry standard VaR technique. The methodology incorporates the portfolio diversification effect within each standard risk factor (interest rate, credit
spread, foreign exchange, equity, as applicable). This VaR metric is derived from an observation of historical prices over a period of one year, assessed at a 95% statistical confidence level and using a 1 day holding period. Although an important measure of risk, VaR has limitations as a result of its use of historical data holding periods and its assumption that markets remain constant over
the given time horizon. Furthermore, the use of confidence intervals does not convey any information about potential loss when the confidence level is exceeded. The Group recognises these limitations and supplements its use with a variety of other
techniques, including sensitivity analysis, interest rate gaps by time period and daily open foreign exchange and equity positions. In particular, the sensitivity of the Groups AFS securities portfolio to a one basis point shift in credit
spreads is actively monitored and the portfolio is subject to additional nominal limits. The size of the AFS portfolio and the net unrealised gains/losses are set out in note 33. Stress-testing and scenario analysis are employed on an ongoing basis to gauge the vulnerability of Treasurys portfolio to loss under stressed market conditions.
Some stress-tests revolve around defining large, severe and extreme scenarios and determining the changes in the value of Treasurys portfolio of financial instruments in the event of any one scenario. Others, for example in the case of
interest rate risk portfolios, employ principal components analysis (PCA) to analyse interest rate term structure factor sensitivity (i.e. PCA identifies the three most predictive elements driving interest rate changes, namely parallel
shift, and twist and bow, and uses these in the determination of alternative stressed portfolio valuation). For foreign exchange and equity portfolios, historical simulation techniques are used to determine potential worst case outcomes. Treasury Asset and Liability Management (TALM), reporting to the CFO, is responsible for identifying, measuring, monitoring and reporting the Groups
aggregate market risk profile and managing the Groups financial instruments valuation processes. TALM supports front line management where sanctioned market risk exists, particularly the Head of Treasury, through the information they provide
and the portfolio analysis they undertake. TALM also estimates the level of capital required to support market risks. Financial Risk, reporting to the CRO, is
responsible, for exercising independent risk oversight and control over the Groups total market risk portfolio. In particular, Financial Risk provides oversight on the integrity and effectiveness of the risk and control environment and
escalates any deficiencies therein. It monitors the evolving risk profile, providing appropriate challenge to the frontline on its management through the different governance forums and the CRO report. It provides assurance that the risk dimensions
of the business activity are understood and escalates any limit excesses as they arise. It proposes and maintains the Market Risk Management Framework and Policies as the basis of the Groups control architecture for market risk activities,
including the annual agreement of market risk limits (subject to the Board approved Risk Appetite Statement). Financial Risk is also responsible for the integrity of the market risk measurement methodologies.









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3.3 Market risk*(continued) Risk management and mitigation Market risk management in the Group is actively
administered on the basis of clearly delegated authorities that reflect the appropriate segregation of duty, fit for purpose trading environments with enabling technology and competent personnel with relevant skill and experience. From a governance
perspective, the market risk agenda (including the valuation of financial instruments) is overseen by the Market Risk Committee (MRC). The MRC supports the 3 Lines of Defence governance model, plays a key role in elevating
the visibility of market risk issues and sets the benchmark for market risk management across the Group. The Chairman of the MRC, the Head of Products, derives his delegated authority from Group ALCo and the MRC is formally a sub-committee of Group
ALCo. The membership comprises representatives from Treasury, TALM, Financial Risk and GIA. The MRC establishes a common basis of communication, provides definitive guidance on the Groups market risk activities and contributes directly to its
risk culture. As a core risk management principle, the Group requires that Treasury manages, and is responsible for, all material interest rate risk in the Group.
Banking book risk is managed as part of Treasurys overall interest rate risk position. The Group manages structural interest rate risk volatility by maintaining a portfolio of instruments with interest rates fixed for several years. The size
and maturity of this portfolio is determined by characteristics of the interest-free or fixed-rate liabilities and assets and, in the case of the Groups capital, an assumed average maturity. Market risk management aligns with trading business strategy through the articulation of an annual risk strategy and appetite statement. This process yields a suite of
market risk limits that considers both the risk (e.g. IRRBB and VaR) and financial (e.g. embedded value and stop loss) impacts of Treasury activities. It should be noted that credit risk issues inherent in the market risk portfolios are subject to the credit risk framework that was described in the previous section. A
suite of policies and standards clarifies roles and responsibilities, and provides for effective measurement, monitoring and review of dealing positions. Risk
monitoring and reporting Quantitative and qualitative information is used at all levels of the organisation, up to and including the Board, to identify, assess
and respond to market risk. The actual format and frequency of risk disclosure depends on the audience and purpose and ranges from transaction-level control and activity reporting to enterprise level risk profiles. For example, front office and risk
functions receive the full range of daily control and activity, valuation, sensitivity and risk measurement reports, while risk governance forums receive a monthly market risk commentary and summary risk profile. The MRC acts as the principal risk governance forum for the Groups market risk activities (including trading and banking books) and receives a reporting pack on a
monthly basis to allow it review the Groups consolidated market risk profile, focusing on emerging trends, key changes and results of stress scenarios. Group ALCo also monitors AIBs market risk position and has specific responsibility
for providing direction on capital management, IRRBB and funds transfer pricing decisions. Group ALCo meets on a monthly basis and receives standing reports on the Groups asset and liability risk profile, which allows it to monitor positions
against limits. Market risk profile The table below shows the sensitivity
of the Groups Banking Book to a hypothetical immediate and sustained 100 basis point (bp) movement in interest rates on 1 January 2013 and 1 January 2012 and the impact on net interest income over a twelve month period. Sensitivity of projected net interest income to interest rate movements: 31 December2012




2011Sensitivity of projected net interest income to interest rate movements

 m




 m+ 100 basis point parallel move in all interest rates


(19)





(11
) 100 basis point parallel move in all interest rates


(3)





11 The analysis is subject to certain simplifying assumptions including but not limited to: equal, simultaneous parallel movements in rates
across all; all positions on wholesale books run to maturity; and there is no management action in response to movements in interest rates, such as changes in product margins. In practice, positions in both retail and wholesale books are actively
managed and the actual impact on interest income can differ from the model.








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3.3 Market risk*(continued) Market risk profile The following table summarises Treasurys VaR profile
for the years ended 31 December 2012 and 2011, measured in terms of Value at Risk. For interest rate risk positions, the table also differentiates between Treasurys banking book (arising principally from its holdings of AFS securities)
and trading book positions. For VaR measurement, Treasury employs a 95% confidence interval, a 1-day holding period and a 1-year sample period.  VaR (trading book)




VaR (banking book)




Total VaR2012




2011




2012




2011




2012




2011 m




 m




 m




 m




 m




 mInterest rate risk1 day holding period:Average


0.2





0.4





4.6





4.9





4.6





4.9High


0.4





0.9





7.7





6.0





7.7





6.0Low


0.1





0.2





2.0





3.3





2.0





3.431 December


0.2





0.2





2.2





5.8





2.2





5.8 On a like for like basis, Treasurys VaR fell slightly during 2012 to an average of  4.6 million compared to  4.9 million for 2011 with exposure levels remaining restrained. The factors affecting the overall interest rate VaR in 2012 were: 

a fall in underlying strategic exposures as existing positions ran down the curve; 

a fall in the underlying level of market interest rate volatility which influences the VaR calculation  in 2012 there was a continuation of the low interest rate environment and very few tail events with rising
interest rates (this dampens the VaR on liability-led position); 

lower basis risk associated with managing the Groups NAMA bond portfolio due to a reduction in cash versus derivative spread volatility to more normal levels and also the redemption of  2.4 billion of NAMA bonds during the period; 

lower interest rate risk taking in the trading book generally, reflecting greater Treasury focus on liquidity management and banking book risk management; and 

lower strategic interest rate risk taking, reflecting a market view that the interest rates cycle has bottomed and re-investment will require a higher interest rate re-entry point. The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2012 and 2011:  Foreign exchangerate risk


Equity riskVaR (trading book)


VaR (trading book)2012


2011


2012


2011 m


 m


 m


 m1 day holding period:Average


0.1



0.2



0.5



0.7High


0.1



0.4



0.7



1.1Low










0.4



0.431 December










0.4



0.6 In terms of foreign exchange VaR, the level of overall exposure remains modest with very little open risk being run, the average VaR for
2012 was  0.06 million (shown as  0.1 million) compared to 
0.16 million in 2011 (shown as  0.2 million). A similar pattern was evident in terms of equity VaR with an average of  0.5 million in 2012 compared
to  0.7 million in 2011.









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3.4 Structural foreign exchange risk* The Group has two objectives with respect to foreign exchange risk. Firstly, to ensure, that its consolidated capital ratios are largely protected from the effect of
changes in exchange rates and secondly, that the Groups foreign currency earnings are managed within tolerance levels based on the forecast for the forthcoming year, making use of other natural hedges within the Groups balance sheet
where these are available. The former is termed structural foreign exchange risk and results from net investment in subsidiaries, associates and branches, the functional currencies of which are currencies other than euro. The amount of structural
foreign exchange risk is immaterial. Risk identification and assessment The Group prepares its consolidated statement of financial position in euro. Accordingly, the consolidated statement of financial position is affected by movements in the
exchange rates between foreign currencies and the euro. The Group is exposed to foreign exchange risk as it translates foreign currencies into euro at each reporting period and the currency profile of the Groups capital may not necessarily
match that of its assets and risk-weighted assets. Risk management and mitigation The Groups foreign exchange hedging activity (on foreign currency earnings) is overseen by the Head of Treasury, as advised by the Hedging Committee. The Hedging
Committee also monitors and reports to Group ALCo on the foreign exchange sensitivity of consolidated capital ratios. Group ALCo sets the framework for and reviews the management of these activities. The impact on capital ratios is measured in terms of basis points sensitivities using scenario analysis. Risk monitoring and reporting The Board reviews and approves relevant policies
and limits. Group ALCo monitors the Groups foreign exchange risks. It meets on a monthly basis and receives reports on the Groups asset and liability risk profile including foreign exchange risk. Open positions are reported as
differences between expected earnings in the current year and the value of hedges in place. Exchange differences on structural exposures are recognised in other income in the financial statements.








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3.5 Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. It includes legal risk, but
excludes strategic and business risk. In essence, operational risk is a broad canvas of individual risk types which include information technology, business continuity, health and safety risks, and legal risk. Risk identification and assessment Risk and Control Self-Assessment
(self-assessment) is a core process in the identification and assessment of operational risk across the enterprise. The process serves to ensure that key operational risks are proactively identified, evaluated, monitored and reported,
and that appropriate action is taken. Self-assessment of risks is completed at business unit level and these are incorporated into the Operational Risk Self Assessment Risk template (SART) for the business unit. SARTs are regularly
reviewed and updated by business unit management. A matrix is in place to enable the scaling of risks and plans must be developed to introduce mitigants for the more significant risks. Monitoring processes are in place at business and support level
and Operational Risk Teams undertake reviews to ensure the completeness and robustness of each business units self-assessment, and that appropriate attention is given to the more significant risks. Risk management and mitigation Each business area is primarily responsible for
managing its own operational risks. An overarching Group Operational Risk Management (ORM) framework is in place, designed to establish an effective and consistent approach to operational risk management across the enterprise. The Group
ORM framework is also supported by a range of specific policies addressing issues such as information security and business continuity management. An important
element of the Groups operational risk management framework is the ongoing monitoring through self-assessment of risks, control deficiencies and weaknesses, plus the tracking of incidents and loss events. The role of Operational Risk is to
review and coordinate operational risk management activities across the Group including setting policy and standards and promoting best practice disciplines augmented by an independent assurance process. The Group requires all business areas to undertake risk assessments and establish appropriate internal controls in order to make sure that all components, taken
together, deliver the control objectives of key risk management processes. In addition, an insurance programme is in place, including a self insured retention, to cover a number of risk events which would fall under the operational risk umbrella.
These include financial lines policies (comprehensive crime/computer crime; professional indemnity/civil liability; employment practices liability; directors and officers liability) and a suite of general insurance policies to cover such things as
property and business interruption, terrorism, combined liability and personal accident. Risk monitoring and reporting The primary objective of the operational risk management reporting and control process within the Group is to provide timely, pertinent operational risk information to
the appropriate management level so as to enable appropriate corrective action to be taken and to resolve material incidents which have already occurred. A secondary objective is to provide a trend analysis on operational risk and incident data for
the Group. The reporting of operational incidents and trend data at the Executive Risk and Board Risk committees supports these two objectives. In addition, the Board, Group Audit Committee and the Executive Committee receive summary information on
significant operational incidents on a regular basis. Business units are required to review and update their assessment of their operational risks on a regular
basis. Operational Risk assurance teams undertake review and challenge assessments of the business unit risk assessments. In addition, quality assurance teams which are independent of the business undertake reviews of the operational controls in the
retail branch networks as part of a combined regulatory/compliance/operational risk programme. Operational risk  New Target Operating Model AIB has developed a new target operating model for operational risk to ensure the framework outlined above is embedded and executed more robustly across the Group. The
key principles of the new model are: 

A strong operational risk function, appropriately staffed and clearly independent of the first line of defence; 

Technology in place to support assessment and mitigation of operational risks; and 

Greater control effectiveness testing by operational risk.








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3.6 Regulatory compliance risk* Regulatory compliance risk is defined as the risk of regulatory sanctions, material financial loss or loss to reputation which the Group may suffer as a result of failure
to comply with all applicable laws, regulations, rules, standards and codes of conduct applicable to its activities. Regulatory Compliance is an enterprise-wide
function which operates independently of the business. The function is responsible for identifying compliance obligations arising in each of the Groups operating markets. Regulatory Compliance work closely with management in assessing
compliance risks and provide advice and guidance on addressing these risks. Risk-based monitoring of compliance by the business with regulatory obligations is undertaken. The Regulatory Compliance function also promotes the embedding of an ethical
framework within AIBs businesses to ensure that the Group operates with honesty, fairness and integrity. A code of Business Ethics is in place for all staff alongside a Leadership Code for more senior staff. These are supported by a suite of
policies. New Board driven codes are being put in place to enhance and build on the existing codes. Risk identification and assessment The Regulatory Compliance function is specifically responsible for independently identifying and assessing current and forward looking conduct of business
compliance obligations, including anti-money laundering and regulation on privacy and data protection. The identification, interpretation and communication roles relating to other legal and regulatory obligations have been assigned to functions with
specialist knowledge in those areas. For example, employment law is assigned to Human Resources, taxation law to Group Taxation and prudential regulation to the Finance and Risk functions. Regulatory Compliance undertakes a periodic detailed assessment of the key conduct of business compliance risks and associated mitigants. These are collated
and processed by Regulatory Compliance into an overall enterprise-wide review of compliance risks as part of the Groups Material Risk Assessment. This is reviewed by the ERC and ultimately, the Group Audit Committee. The Regulatory Compliance
function supports and validates this approach by operating a risk framework model that is used in collaboration with business units to identify, assess and manage key compliance risks at business unit level. These risks are incorporated into the
SARTs for the relevant business unit. Risk management and mitigation The
Board, operating through the Audit Committee, approves the Groups compliance policy and the mandate for the Regulatory Compliance function. Management is
responsible for ensuring that the Group complies with its regulatory responsibilities. ExCos responsibilities in respect of compliance include the establishment and maintenance of the framework for internal controls and the control environment
in which compliance policy operates thereby ensuring that Regulatory Compliance is suitably independent from business activities and that it is adequately resourced. The primary role of the Regulatory Compliance function is to provide direction and advice to enable management to discharge its responsibility for managing the
Groups compliance risks. Regulatory Compliance is also mandated to conduct investigations of possible breaches of compliance policy and to appoint outside legal counsel or other specialist external resources to perform this task, if
appropriate. The principal compliance risk mitigants are risk identification, assessment, measurement and the establishment of suitable controls at business level.
In addition, the Group has insurance policies that cover a number of risk events which fall under the regulatory compliance umbrella. Risk monitoring and
reporting Regulatory Compliance undertakes risk-based monitoring of compliance with relevant policies, procedures and regulatory obligations. Monitoring can be
undertaken by either dedicated compliance monitoring teams or quality assurance teams in retail segments, covering both operational risk and regulatory compliance, at the direction of the compliance function. Risk prioritised annual compliance monitoring plans are prepared based on the risk assessment process. Monitoring is undertaken both on a business unit and a process
basis. The annual monitoring plan is reviewed regularly, and updated to reflect changes in the risk profile from emerging risks, changes in risk assessments and new regulatory hotspots. Issues emerging from compliance monitoring are
escalated for management attention, and action plans and implementation dates are agreed. The implementation of these action plans is monitored by Regulatory Compliance. Regulatory Compliance report to the Executive Risk Committee, business unit management teams and independently to the Board of Directors, through the Audit Committee, on
the effectiveness of the processes established to ensure compliance with laws and regulations within its scope.








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3.7 Pension risk Pension risk is the risk that the funding position of the Groups defined benefit plans would deteriorate to such an extent that the Group would be required to make
additional contributions to cover its pension obligations towards current and former employees. Pension risk includes market risk, investment risk and actuarial risk. The Group maintains a number of defined benefit pension schemes for past and
current employees, further details of which are included in note 12 to the financial statements. The ability of the pension funds to meet the projected pension payments is maintained through the diversification of the investment portfolio across
geographies and across a wide range of assets including equities, bonds, mortgage portfolios and property. Market risk arises because the estimated market value of the pension fund assets might decline or their investment returns might reduce.
Actuarial risk is the risk that the estimated value of the pension liabilities might increase. As detailed in note 12, there were a number of significant
developments in 2012 with regard to the Groups defined benefit schemes which include the Groups announcement of its intention to close the schemes to future accrual. While the Group is taking certain risk mitigating actions, however, due
to difficult financial market conditions and recent changes to pension and accounting regulations, a level of volatility associated with pension funding remains.








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3.8 Parent company risk information Credit risk  

Maximum exposure to credit risk  

Collateral  

Loans and receivables to customers by geographic location and industry sector  

Internal credit ratings  

Impaired loans by geographic location and industry sector  

Aged analysis of contractually past due but not impaired gross loans  

Provisions for impairment by geographic location and industry sector  

External credit ratings of financial instruments  

Leveraged debt by geographic location and industry sector Market risk profile








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3.8 Parent company risk information(continued) The following table sets out the maximum exposure to credit risk that arises within Allied Irish Banks, p.l.c. and distinguishes between those assets that are carried in
the statement of financial position at amortised cost and those carried at fair value at 31 December 2012 and 31 December 2011:  2012




2011Maximum exposure to credit risk*




Amortisedcost 
m
(8)




Fairvalue
 m
(9)




Total

 m







Amortisedcost  m
(8)




Fairvalue  m
(9)




Total

 mBalances at central banks(1)




558











558







527











527Items in course of collection




95











95







100











100Disposal groups and non-current assets held for sale




353











353







1,129











1,129Trading portfolio financial assets(2)










22





22













54





54Derivative financial instruments(3)










2,768





2,768













3,025





3,025Loans and receivables to banks(4)




31,284











31,284







36,028











36,028Loans and receivables to customers(5)




37,234











37,234







42,074











42,074NAMA senior bonds




17,082











17,082







19,509











19,509Financial investments available for sale(6)










14,829





14,829













13,132





13,132Other assets:Sale of securities awaiting settlement
























2











2Trade receivables




28











28







83











83Accrued interest(7)




391











391







515











51587,025





17,619





104,644







99,967





16,211





116,178Financial guarantees




1,095











1,095







1,575











1,575Loan commitments and other credit related commitments




7,690











7,690







8,269











8,2698,785











8,785







9,844











9,844Total




95,810





17,619





113,429







109,811





16,211





126,022 (1)Included within cash and balances at central
banks of  1,076 million (2011:  1,067 million). (2)Excluding equity shares of  2 million (2011:  2 million). (3)Exposures to subsidiary undertakings of  293 million (2011:
 356 million) have been included. (4)Exposures to subsidiary undertakings of
 29,709 million (2011:  33,441 million) have been included. (5)Exposures to subsidiary undertakings of
 11,891 million (2011:  11,868 million) have been included. (6)Excluding equity shares of  101 million (2011:  204 million). (7)Exposures to subsidiary undertakings of  12 million (2011:
 42 million) have been included. (8)All amortised cost items are loans and receivables per IAS 39
Financial Instruments: Recognition and Measurementdefinitions. (9)All
items measured at fair value except financial investments available for sale and cash flow hedging derivatives are classified as fair value through profit or loss.








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3.8 Parent company risk information(continued) Collateral Allied Irish Banks, p.l.c. takes collateral as a secondary source of
repayment in the event of a borrowers default. The nature of collateral taken is set out on page 70. Set out below is the fair value of collateral accepted by
Allied Irish Banks p.l.c. at 31 December 2012 and 31 December 2011 in relation to financial assets detailed in the maximum exposure to credit risk table on page 157: Loans and receivables to banks Interbank placings, including central
banks, are largely carried out on an unsecured basis apart from reverse repurchase agreements. At 31 December 2012, Allied Irish Banks p.l.c. has received collateral with a fair value of  61 million on loans with a carrying value of  61 million (2011:  55 million and  59 million respectively). Loans and receivables to customers The following table shows the fair value of collateral held for residential mortgages at 31 December 2012 and 31 December 2011:  2012




2011Neither past


Past due


Impaired


Total




Neither past


Past due


Impaired


Totaldue nor


but not










due nor


but notimpaired


impaired










impaired


impaired m


 m


 m


 m




 m


 m


 m


 mFully collateralised(1)Loan-to-value ratio:Less than 50%


118



3



7



128





143



3



6



15250% - 70%


134



5



10



149





142



2



7



15171% - 80%


81



2



9



92





79



2



4



8581% - 90%


89



4



8



101





81



3



6



9091% - 100%


126



6



51



183





162



3



12



177548



20



85



653





607



13



35



655Partially collateralisedCollateral value relating to loans over 100% loan-to-value


794



23



235



1,052





993



50



200



1,243Total collateral value


1,342



43



320



1,705





1,600



63



235



1,898Gross residential mortgages


1,653



50



407



2,110





1,916



83



310



2,309(
2)Statement of financial position specific provisions










(125
)


(125)













(103
)


(103)Statement of financial position IBNR provisions














(22)

















(65)Net residential mortgages










282



1,963













207



2,141 (1)The fair value of collateral held for residential
mortgages which are fully collateralised has been capped at the carrying value of the loans outstanding at each year end. (2)Excludes purchased residential mortgage pools of  178 million in 2011. In 2012, these have been
included in the financial sector. While AIB considers that a borrowers repayment capacity is paramount in granting any loan, the Company also
takes collateral in support of lending transactions for the purchase of residential property. There are clear policies in place which set out the type of property which is acceptable as collateral and the loan to property value relationship.
Collateral valuations are required at the time of origination of each residential mortgage. The fair value at 31 December 2012 is based on the property values at origination and applying the CSO (Ireland) and Nationwide (UK) indices to these
values to take account of price movements in the interim. Non-mortgage portfolios Details of collateral in relation to the non mortgage portfolio are set out on page 70. NAMA senior bonds Allied Irish Banks p.l.c. holds a guarantee from the Irish
Government in respect of NAMA senior bonds which at 31 December 2012 have a carrying value of  17,082 million (2011:  19,509 million) Financial investments available for sale At 31 December 2012, government guaranteed senior bank debt amounting to
 495 million (2011:  554 million) was held within the available for sale portfolio.








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3.8 Parent company risk information(continued) The information contained in this note relates only to third party exposures arising within Allied Irish Banks, p.l.c. Loans and receivables to customers by geographic location and industry sector*  2012Of whichRepublic
of Ireland


United Kingdom


United States of America


Rest of theWorld


Total




Loans and receivables
to customers


Disposal groups and non-current assets held for sale m


 m


 m


 m


 m




 m


 mAgriculture


1,722















1,722





1,722



Energy


298



113



19







430





342



88Manufacturing


1,074



58



4







1,136





1,136



Property and construction


15,673



599



40







16,312





16,312



Distribution


5,633



409



1







6,043





6,043



Transport


502



528



22







1,052





679



373Financial


582



19



2







603





603



Other services


2,849



247



186







3,282





3,268



14PersonalResidential mortgages


2,110















2,110





2,110



Other


4,211















4,211





4,211



Lease financing




























34,654



1,973



274







36,901





36,426



475Unearned income


(74)



(5)



(1)







(80)





(80)



Deferred costs


2















2





2



Provisions


(10,825)



(285)



(17)







(11,127)





(11,005)



(122)Total


23,757



1,683



256







25,696





25,343(
1)


3532011Of whichRepublic of Ireland


United Kingdom


United States of America


Rest of the World


Total




Loans andreceivablestocustomers


Disposal groups and non-current assets held for sale m


 m


 m


 m


 m




 m


 mAgriculture


1,801















1,801





1,795



6Energy


393



243



41



174



851





620



231Manufacturing


1,381



132



12



10



1,535





1,502



33Property and construction


16,267



687



218



112



17,284





16,608



676Distribution


6,266



478



14



35



6,793





6,720



73Transport


573



614



32







1,219





1,186



33Financial


1,039



113











1,152





1,146



6Other services


3,148



328



270



4



3,750





3,735



15Personal:Residential mortgages


2,433











54



2,487





2,427



60Other


4,733















4,733





4,733



Lease financing


21















21





21



38,055



2,595



587



389



41,626





40,493



1,133Unearned income


(85)



(7)



(2)



(1)



(95)





(93)



(2)Deferred costs


3















3





3



Provisions


(9,998)



(186)



(13)



(9)



(10,206)





(10,197)



(9)Total


27,975



2,402



572



379



31,328





30,206(
1)


1,122 (1)Excludes intercompany balances of  11,891 million (2011:  11,868 million).








| |  |                                                             |  |    
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| |  | *Forms an integral part of the audited financial statements |  |    
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3.8 Parent company risk information(continued) Internal credit ratings* The internal credit rating profiles of loans and
receivables to customers by asset class for Allied Irish Banks, p.l.c. at 31 December 2012 and 31 December 2011 are as follows:  2012




2011Corporate/commercial


Residentialmortgages


Other


Total




Corporate/commercial


Residentialmortgages


Other


TotalMasterscale grade

 m


 m


 m


 m




 m


 m


 m


 m1 to 3


995



390



1,003



2,388





1,726



536



1,036



3,2984 to 10


8,481



868



1,902



11,251





14,193



1,073



2,149



17,41511 to 13


2,505



293



1,002



3,800





2,251



240



1,200



3,69111,981



1,551



3,907



17,439





18,170



1,849



4,385



24,404Past due but not impaired(1)


1,321



38



368



1,727





1,747



50



451



2,248Impaired


16,157



265



1,313



17,735





13,582



265



1,127



14,974Total gross loans and receivables


29,459



1,854



5,588



36,901





33,499



2,164



5,963



41,626Unearned income














(80)

















(95)Deferred costs














2

















3Impairment provisions














(11,127)

















(10,206)Total














25,696

















31,328 (1)Of this amount,  41 million relates to masterscale grade 1  3 (2011:  65 million);
 596 million relates to masterscale grade 4  10 (2011:  944 million) and  1,090 million relates to
masterscale grade 11  13 (2011:  1,239 million). Details of the rating profiles, masterscale ranges and lending
classifications are set out on page 122.








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3.8 Parent company risk information(continued) Impaired loans by geographic location and industry sector* The following table
presents an analysis of impaired loans and receivables to customers for Allied Irish Banks, p.l.c. at 31 December 2012 and 31 December 2011.  2012Of whichRepublic
of Ireland


UnitedKingdom


United Statesof America


Rest of theWorld


Total




Loans andreceivables
to customers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


322















322





322



Energy


32







3







35





35



Manufacturing


313















313





313



Property and construction


10,732



375



40







11,147





11,147



Distribution


2,807



54











2,861





2,861



Transport


104



237











341





104



237Financial


219















219





219



Other services


703



29



13







745





745



Personal:Residential mortgages


407















407





407



Other


1,345















1,345





1,345



Lease financing




























Total


16,984



695



56







17,735





17,498



2372011Of whichRepublicof Ireland


UnitedKingdom


United Statesof America


Rest of theWorld


Total




Loans andreceivablestocustomers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


299















299





299



Energy


33







3







36





36



Manufacturing


274



19



1







294





294



Property and construction


8,909



170



43







9,122





9,122



Distribution


2,493



72



2







2,567





2,567



Transport


107



1











108





108



Financial


168















168





168



Other services


626



90











716





716



Personal:Residential mortgages


398











12



410





392



18Other


1,252















1,252





1,252



Lease financing


2















2





2



Total


14,561



352



49



12



14,974





14,956



18








| |  |                                                             |  |    
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| |  | *Forms an integral part of the audited financial statements |  |    
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3.8 Parent company risk information(continued) Aged analysis of contractually past due but not impaired gross loans* The
following table presents by industry sector an aged analysis of contractually past due but not impaired loans and receivables to customers for Allied Irish Banks, p.l.c. at 31 December 2012 and 31 December 2011.  2012Of which1  30days


31  60days


61  90days


91 +days


Total




Loans andreceivables
to customers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


53



8



15



59



135





135



Energy


6











2



8





8



Manufacturing


17



3



2



16



38





38



Property and construction


159



74



58



407



698





698



Distribution


68



30



16



127



241





241



Transport


6



5



1



19



31





31



Financial


1



1



6



8



16





16



Other services


61



19



13



74



167





167



Personal:Residential mortgages


17



9



4



18



48





48



Credit cards


37



11



9



6



63





63



Other


71



28



38



145



282





282



Total


496



188



162



881



1,727





1,727



As a percentage of total loans(1)


1.3
%


0.5
%


0.4
%


2.4
%


4.7%





4.7
%


2011Of which1  30days


31  60days


61  90days


91 +days


Total




Loans andreceivablestocustomers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


53



36



10



43



142





142



Energy


3







1



5



9





9



Manufacturing


21



15



1



13



50





50



Property and construction


247



127



97



390



861





861



Distribution


123



71



44



200



438





438



Transport


9



7



2



6



24





24



Financial


2



1



1



6



10





10



Other services


77



26



12



74



189





189



Personal:Residential mortgages


19



21



8



35



83





81



2Credit cards


49



16



11



9



85





85



Other


116



57



33



151



357





357



Total


719



377



220



932



2,248





2,246



2As a percentage of total loans(1)


1.8
%


0.9
%


0.5
%


2.5
%


5.8%





5.6
%


0.2
% (1)Total loans (excluding intercompany) are gross
of impairment provisions and unearned income.








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3.8 Parent company risk information(continued) Provisions for impairment by geographic location and industry sector* The
following table presents an analysis of provisions for impairment on loans and receivables to customers for Allied Irish Banks, p.l.c. at 31 December 2012 and 31 December 2011.  2012Of whichRepublicof Ireland


UnitedKingdom


United Statesof America


Rest of theWorld


Total




Loans andreceivablestocustomers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


225















225





225



Energy


26







3







29





29



Manufacturing


221















221





221



Property and construction


6,163



99



7







6,269





6,269



Distribution


1,717



37











1,754





1,754



Transport


88



122











210





88



122Financial


157















157





157



Other services


482



6



6







494





494



Personal:Residential mortgages


125















125





125



Other


1,004















1,004





1,004



Specific


10,208



264



16







10,488





10,366



122IBNR


617



21



1







639





639



Total


10,825



285



17







11,127





11,005



1222011Of whichRepublicof Ireland


UnitedKingdom


United Statesof America


Rest of theWorld


Total




Loans andreceivablestocustomers


Disposalgroups andnon-currentassets heldfor sale m


 m


 m


 m


 m




 m


 mAgriculture


192















192





192



Energy


24







3







27





27



Manufacturing


170



11



1







182





182



Property and construction


5,180



33



7







5,220





5,220



Distribution


1,434



51











1,485





1,485



Transport


74



3











77





77



Financial


133















133





133



Other services


386



59











445





445



Personal:Residential mortgages


147











3



150





147



3Other


854















854





854



Specific


8,594



157



11



3



8,765





8,762



3IBNR


1,404



29



2



6



1,441





1,435



6Total


9,998



186



13



9



10,206





10,197



9








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| |  | *Forms an integral part of the audited financial statements |  |    
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|LOGO |  | Risk management - 3. Individual risk types |  | 






3.8 Parent company risk information(continued) External credit ratings of financial assets* The external credit ratings
profile of loans and receivables to banks, NAMA senior bonds, trading portfolio financial assets (excluding equity securities) and financial investments available for sale (excluding equity shares) for Allied Irish Banks, p.l.c. at 31 December
2012 and 31 December 2011 is as follows:  2012Bank(1) m


Corporate m


Sovereign m


Other m


Total mAAA/AA


1,535



3



3,835



583



5,956A


1,476



15



221



223



1,935BBB+/BBB/BBB-


723



60



24,274
(2)


79



25,136Sub investment


86



99



26



79



290Unrated


76



115











191Total


3,896



292



28,356



964



33,5082011Bank(1)
 m


Corporate m


Sovereign m


Other m


Total  mAAA/AA


1,102







3,362



1,468



5,932A


1,015



14



175



171



1,375BBB+/BBB/BBB-


2,701



77



24,482
(2)


35



27,295Sub investment


157



150



48



68



423Unrated


96



160







1



257Total


5,071



401



28,067



1,743



35,282 (1)Excludes loans to subsidiaries of  29,709 million (2011:  33,441 million). (2)Includes NAMA senior bonds which do not have an external credit rating and to
which the Group has attributed a rating of BBB+ (2011 :BBB+) i.e. the external rating of the Sovereign.








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3.8 Parent company risk information(continued) Leveraged debt by geographic location and industry sector* Leveraged lending
(including the financing of management buy-outs, buy-ins and private equity buy-outs) is conducted primarily through specialist lending teams. The leveraged loan book is held as part of the loans and receivables to customers portfolio. Specific
impairment provisions of  29 million (2011:  11 million) are currently held against impaired exposures of
 60 million (2011:  30 million). These impaired exposures are not included in the analysis below. The unfunded element below includes off-balance sheet
facilities and the undrawn element of facility commitments. The portfolio continues to reduce, in large part due to AIBs deleveraging activities.  2012




2011Leveraged debt by geographic location

Funded m


Unfunded
 m




Funded
 m


Unfunded mUnited Kingdom


84



24





58



12Rest of Europe


39



4





131



13United States of America


154



50





189



32Rest of World


31









1



308



78





379



57  Funded leveraged debt by industry sector*







2012
 m


2011

mAgriculture












Property and construction












Distribution








62



102Energy








28



Financial








5



3Manufacturing








117



177Transport








6



18Other services








90



79308



379








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|LOGO |  | Risk management - 3. Individual risk types |  | 






3.8 Parent company risk information(continued) Market risk profile* The following table sets out the VaR for Allied Irish
Banks, p.l.c. at 31 December 2012 and 31 December 2011:  VaR (trading book)




VaR (banking book)




Total VaR2012

m


2011
 m




2012

m


2011
 m




2012 m


2011  mInterest rate risk1 day holding period:Average


0.2



0.4





4.5



4.9





4.6



4.9High


0.4



0.9





7.7



6.0





7.7



5.9Low


0.1



0.2





2.0



3.3





2.0



3.431 December


0.2



0.2





2.2



5.7





2.2



5.8 The following table sets out the VaR for foreign exchange rate and equity risk for the years ended 31 December 2012 and
31 December 2011:  Foreign exchange
rate risk




Equity riskVaR (trading book)




VaR (trading book)2012
 m


2011  m




2012

m


2011

m1 day holding period:Average


0.1



0.2





0.5



0.7High


0.3



0.4





0.7



1.1Low












0.4



0.431 December












0.4



0.6








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Page1.

The Board & Executive Officers


1682.

Report of the Directors


1713.

Corporate Governance statement


1734.

Supervision and Regulation4.1

Current climate of regulatory change


1854.2

Ireland


1854.3

United Kingdom


1894.4

United States


1914.5

Other locations


192








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|LOGO |  | Governance and oversight 
1. The Board and Executive Officers |  | 






Certain information in respect of the Directors and Executive Officers is set out below. David Hodgkinson Chairman (Non-Executive Director) and Nomination and Corporate Governance Committee Chairman Mr Hodgkinson was Group Chief Operating Officer for HSBC Holdings plc from May 2006 until his retirement from the company in December 2008. During his career with HSBC,
he held a number of senior management positions in the Middle and Far East, and Europe, including as Managing Director of The Saudi British Bank, and CEO of HSBC Bank Middle East. Mr Hodgkinson, who joined HSBC in 1969, has also served as Chairman
of HSBC Bank Middle East Limited, HSBC Bank A S Turkey, Arabian Gulf Investments (Far East) Limited and HSBC Global Resourcing (UK) Ltd. He was a Director of HSBC Bank Egypt SAE, The Saudi British Bank, Bank of Bermuda Limited, HSBC
TrinkausBurkhardt and British Arab Commercial Bank. Mr Hodgkinson joined the Board as Executive Chairman on 27 October 2010 and became Non-Executive Chairman
with effect from 12 December 2011. He has been Chairman of the Nomination and Corporate Governance Committee and a member of the Remuneration Committee since January 2011. (Age 62) Simon BallBSc (Economics), FCANon-Executive Director Mr Ball is currently the Non-Executive Deputy Chairman and Senior Independent Director of Cable & Wireless Communications plc, and a Non-Executive Director of
Tribal Group plc. Prior to this, Mr Ball has served as Group Finance Director of 3i Group plc and the Robert Fleming Group, held a series of senior finance and operational roles at Dresdner Kleinwort Benson, and was Director General, Finance for the
HMG Department for Constitutional Affairs. Mr Ball joined the Board in October 2011 and has been a member of the Board Risk Committee since November 2011 and was appointed to the Nomination and Corporate Governance Committee in February 2013. (Age
52) Bernard Byrne*FCADirector Personal, Business & Corporate Banking Mr Byrne joined AIB in May 2010 as Group Chief Financial Officer and member of the Leadership Team and took up the role of Director of Personal & Business
Banking in May 2011. He was appointed to his current post in July 2012. He began his career as a Chartered Accountant with PricewaterhouseCoopers (PwC) in 1988 and joined ESB International in 1994. In 1998 he took up the post of Finance Director
with IWP International Plc before moving to ESB in 2004 where he held the post of Group Finance and Commercial Director until he left to join AIB. Mr Byrne was co-opted to the Board on 24 June 2011. He was appointed Non-Executive Director of
EBS Limited in July 2011. (Age 44) David Duffy*B.B.S., MAChief Executive Officer Mr Duffy joined AIB in December 2011 as Chief Executive Officer and member of the Leadership Team. He has held a number of senior roles in the international banking
industry including, most recently, the position of Chief Executive Officer at Standard Bank International covering Asia, Latin America, the UK and Europe. He was previously Head of Global Wholesale Banking Network of ING Group and President and
Chief Executive Officer of the ING franchises in the US and Latin America. Mr Duffy was co-opted to the Board on 15 December 2011. (Age 51) Peter HaganBSc, Dip BA Non-Executive Director Mr Hagan is former Chairman and CEO of Merrill Lynchs US commercial banking
subsidiaries, he was also a director of Merrill Lynch International Bank (London) Merrill Lynch Bank (Swiss) ML Business Financial Services and FDS Inc. Over a period of 35 years he has held senior positions in the international banking industry,
including as Vice Chairman and Representative Director of the Aozora Bank (Tokyo, Japan). During 2011 and until Sept 2012, he was a director of each of the US subsidiaries of IBRC. He is presently a consultant in the fields of financial service
litigation and regulatory change. He is currently a Director and Treasurer of 170 East 70th Corp. and a Director of the Thomas Edison State College Foundation. Mr Hagan joined the board in July 2012 and is a member of the Board Risk Committee,
Nomination and Corporate Governance Committee and the Remuneration Committee. (Age 64) Tom FoleyBComm, FCANon-Executive
Director Mr Foley is a former Executive Director of KBC Bank Ireland and has held a variety of senior management and board positions with KBC,
including in Corporate Finance, Treasury, Business Banking, Private and Mortgage Banking as well as KBCs UK Division. He was a Member of the Nyberg Commission of Investigation into the Banking Sector during 2010 and 2011 and the Department of
Finance (Cooney) Expert Group on Mortgage Arrears and Personal Debt during 2010. He qualified as a Chartered Accountant with PricewaterhouseCoopers (PwC) and is a former senior executive with Ulster Investment Bank and is a Non-Executive Director of
BPV Finance (International) plc, and IntesaSanPaolo Life Limited. Mr Foley joined the Board in September 2012 and is a member of the Audit Committee and Remuneration Committee. He was appointed Non-Executive Director of EBS Limited in November 2012.
(Age 59) Jim OHara Non-Executive Director Mr OHara is a former Vice President of Intel Corporation and General Manager of Intel Ireland, where he was responsible for Intels technology and
manufacturing group in Ireland. He is a Non-Executive Director of Fyffes plc, a board member of Enterprise Ireland, and Chairman of a number of indigenous technology start up companies. He is a past President of the American Chamber of Commerce in
Ireland. Mr OHara joined the Board in October 2010 and has been a member of the Audit Committee, Remuneration Committee and Nomination and Corporate Governance Committee since January 2011, and was appointed Chairman of the Remuneration
Committee in July 2012. He was appointed Non-Executive Director of EBS Limited in June 2012. (Age 62)








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Dr Michael SomersBComm, M.Econ.Sc, Ph.D Non-Executive Director, Deputy Chairman and Board Risk
Committee Chairman Dr Somers is former Chief Executive of the National Treasury Management Agency. He is Chairman of Goodbody Stockbrokers, a Non- Executive
Director of Fexco Holdings Limited, Willis Group Holdings plc, Hewlett-Packard International Bank plc, the Institute of Directors, the European Investment Bank, St. Vincents Healthcare Group Ltd, and President of the Ireland Chapter of the
Ireland-US Council. He has previously held the posts of Secretary, National Debt Management, in the Department of Finance, and Secretary, Department of Defence. He is a former Chairman of the Audit Committee of the European Investment Bank and
former Member of the EC Monetary Committee. Dr Somers was Chairman of the group that drafted the National Development Plan 1989-1993 and of the European Community group that established the European Bank for Reconstruction and Development
(EBRD). He was formerly a member of the Council of the Dublin Chamber of Commerce. He joined the Board in January 2010 as a nominee of the Minister for Finance under the Governments National Pensions Reserve Fund Act 2000 (as
amended) and has been Chairman of the Board Risk Committee since November 2010. (Age 70) Dick SpringBA, BL Non-Executive
Director Mr Spring is a former Tánaiste (Deputy Prime Minister) of the Republic of Ireland, Minister for Foreign Affairs and leader of the Labour
Party. He is a Non-Executive Director of Fexco Holdings Ltd., Repak Ltd, The Realta Global Aids Foundation Ltd and Chairman of the Diversification Strategy Fund p.l.c. He is Chairman of International Development Ireland Ltd., Altobridge Ltd. and
Alder Capital Ltd. Mr Spring joined the Board in January 2009 as a nominee of the Minister for Finance under the CIFS Scheme. He has been a member of the Nomination and Corporate Governance Committee since April 2009 and the Board Risk Committee
since November 2010. (Age 62) Thomas WackerMBA (International Business & Finance)- Non-Executive Director Mr Wacker is a Non-Executive Director of the USA Rugby Board and is the former Chief Executive Officer of the International Rugby Board. He was a Non-Executive Director
and former Chief Executive Officer of Belmont Advisors (UK) Limited and was a former Chief Executive of IFG Group plcs offshore business and Non-Executive Director of the parent company. Prior to this, Mr Wacker held senior management roles
with Royal Trust Company of Canada, Bank of Montreal, Citibank, and Citigroup Investment Banking Group. Mr Wacker joined the Board in October 2011 and has been a member of the Audit Committee since November 2011. (Age 69) Catherine WoodsBA, Mod (Econ) Non-Executive Director and Audit Committee Chairman Ms Woods is a Non-Executive Director of AIB Mortgage Bank, and Chairman of EBS Limited (from 12 February 2013). She is the Finance Expert on the adjudication panel
established by the Government to oversee the rollout of the National Broadband scheme and is a former Vice President and Head of the European Banks Equity Research Team, JP Morgan, where her mandates included the recapitalisation of Lloyds of
London and the re-privatisation of Scandinavian banks. Ms Woods is a former director of An Post, and a former member of the Electronic Communications Appeals Panel. She joined the Board in October 2010, has been a member of the Audit Committee and
Board Risk Committee since January 2011, and was appointed Chairman of the Audit Committee in July 2011. (Age 50) * Executive Directors Board Committees Information concerning membership of the Boards Audit,
Risk, Nomination and Corporate Governance, and Remuneration Committees is given in the Corporate Governance statement on pages 173 to 184. Executive Officers
(in addition to Executive Directors above) Anne BodenBSc (Jt. Hons), MBA Chief Operating Officer Ms Boden was appointed to her current role and the Leadership Team in July 2012. She joined AIB from RBS where she held the position of Head of EMEA, Global Transaction
Services across 24 countries. From 2006 she was Chief Information Officer and was a member of the Board of Directors of Aon Ltd., where she managed the acquisition strategy. Previously, Ms Boden was at UBS where she held senior management positions
in Zurich within European Corporate and Institutional Banking. In the early part of her career, Ms Boden worked for Lloyds Bank and Standard Chartered Bank, and as a strategy and technology consultant for Price Waterhouse. (Age 53) Helen DooleyLLB Group General Counsel Ms Dooley
was appointed to her current role and the Leadership Team in October 2012, having previously held the role of Head of Legal in EBS Limited. Prior to this she held a number of other senior roles in EBS including Head of Regulatory Compliance and
Company Secretary. Ms Dooley began her career in 1992 working principally as a banking and restructuring lawyer with Wilde Sapte solicitors in London, moving to Hong Kong in 1998 to work for Johnson Stokes & Master solicitors and returning
to Ireland in 2001 to work for A&L Goodbody solicitors. (Age 44)








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|LOGO |  | Governance and oversight 
1. The Board and Executive Officers |  | 






Enda Johnson Head of Corporate Affairs & Strategy Mr Johnson joined AIB as Head of Strategy in May 2012 and was appointed to his current role and the Leadership Team in July 2012. He worked previously as a senior analyst
with the National Treasury Management Agency, including a secondment at the Department of Finance. Before joining the National Treasury Management Agency in 2010, he worked with Merrill Lynch for seven years in New York, London and California, in
their investment banking and equity capital markets divisions. Mr Johnson has a Bachelor of Arts degree in Economics and Bachelor of Science degree in Engineering from Brown University. (Age 33) Orlagh HuntBA, FCIPD Group HR Director Ms Hunt was appointed to her current role and the Leadership Team in September 2012. She joined AIB from RSA (formerly Royal & Sun Alliance) where she was Group
HR and Customer Director, based in London with responsibility for driving the HR agenda in 28 countries across the UK, Asia, Middle East, Latin America and Canada. Ms Hunt began her career in HR with Tesco and moved subsequently to Walker Snack
Foods. She was appointed Head of Human Resources at Axa Life Assurance in 2000 prior to joining RSA in 2003. (Age 40) Fergus MurphyBSc (Mgt), MA,
DABS, AMCT, FIBI Director of Products Mr Murphy was appointed to the Leadership Team in July 2011, in his former role as Managing
Director of EBS Limited, following the acquisition of EBS by AIB, and was subsequently appointed Group Services & Transformation Director in December 2011. He was appointed to his current role in July 2012. Before joining EBS Building
Society as Chief Executive in January 2008, he held a number of senior positions including Chief Executive of ACC Bank plc, Chief Executive of Rabobank Asia, Global Treasurer and Global Head Investment Book Rabobank International and Managing
Director of Rabobank Ireland plc. He is Chairman of Financial Services Ireland. (Age 49) Brendan OConnorBA, MBA Head of
Financial Solutions Group Mr OConnor was appointed to his current role in February 2013. He joined AIB in 1984. From 1988 to 2009 he worked in
AIB Group Treasury in New York and Dublin before moving to AIB Corporate Banking in 2009. He has held a number of senior roles throughout the organisation including Head of AIB Global Treasury Services and Head of Corporate Banking International.
Prior to his most recent appointment he was Head of AIB Business Banking. (Age 47). Ronan ONeillB.Comm, FCA, FIB,Managing Director, AIB Group (UK) plc Mr ONeill was appointed to his current role and to the Leadership Team in October 2011.
He joined AIB in 1979 and has a significant breadth of experience in a number of roles throughout the organisation, including holding the post of Head of Corporate Banking Britain from 1997 to 2002. He has also held senior posts in Risk and Credit
functions and was Head of Corporate and Commercial Banking until he was appointed to his current role. (Age 59) Peter RossiterBBS, FCA Chief Risk Officer Mr Rossiter was appointed to his current role and the Leadership Team in May 2012. He joined AIB from Irish Bank
Resolution Corporation Ltd (IBRC) where he was Chief Risk Officer since November 2009. Previously, he spent 27 years with Citigroup in a range of roles, including senior risk positions in Warsaw, Moscow, Istanbul, London and Brussels. (Age 56) Peter SprattFCA Interim Managing Director of AIB Group (UK) plc Mr Spratt was appointed to his current role in January 2013. Mr Spratt is a partner in PwCs Business Recovery Services practice in London, and is the Global Leader
of PwC Crisis Management practice and has worked in restructuring for over 25 years. PwC were engaged to provide the services of Mr Spratt to oversee the Non-Core Unit from May 2011 and he was appointed to the Leadership Team at that time. He was
appointed as Head of the Financial Solutions Group in July 2012 following its establishment. Since January 2013, Mr Spratt has been acting as Interim Managing Director of AIB Group (UK) plc. (Age 53) Paul StanleyBComm, FCCA Acting Chief Financial Officer Mr Stanley was appointed to his current role and the Leadership Team in May 2011. He joined AIBs Branch banking division in 1980 before moving to the Groups
Financial Control department. He spent two years as a senior risk analyst in the Groups Capital Markets division, treasury operations, before he took up a three year role as Head of Treasury Finance and Risk in AIBs Poland Division (Bank
Zachodni WBK) in 2000. He returned to Ireland in 2003 as Head of Asset Liability Management until he was appointed Group Financial Controller in 2010.(Age 49)








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| |  | Governance and oversight -
2. Report of the Directors for the year ended 31 December 2012 |  | LOGO






The Directors of Allied Irish Banks, p.l.c. (the Company) present their report and the audited financial
statements for the year ended 31 December 2012. A Statement of the Directors responsibilities in relation to the financial statements is shown on page 381. Results The Groups loss attributable to the ordinary shareholders of the
Company amounted to  3,647 million and was arrived at as shown in the consolidated income statement on page 218. Dividend There was no dividend paid in 2012. Going concern The financial statements have been prepared on a going concern
basis. In making its assessment of the Groups ability to continue as a going concern, the Board of Directors have taken into consideration the significant economic and market risks and uncertainties that continue to impact the Group. These
include the ability to access Eurosystem funding and Central Bank liquidity facilities to meet liquidity requirements. In addition, the Directors have considered the current level of capital and the potential requirement for capital in the period of
assessment. Furthermore, the Directors considered the risks and uncertainties impacting the Eurozone and have taken into account the developments taken at EU level which saw a marked easing of the eurozone sovereign debt crisis and improvements in
conditions in eurozone financial markets during the second half of 2012. Credit Institutions (Stabilisation) Act 2010 The Directors have a duty to have regard to the matters set out in the Credit Institutions (Stabilisation) Act 2010 (the Act). This duty is owed by the
Directors to the Minister for Finance of Ireland (the Minister) on behalf of the State and, to the extent of any inconsistency, takes priority over any other duties of the Directors. Under the terms of the Act the Minister may, in
certain circumstances, direct the Company to undertake actions, which may impact on the pre-existing legal and contractual rights of shareholders. Such directions may include the dis-application of shareholder pre-emption rights, an increase in the
Companys authorised share capital, the issue of shares to the Minister or to another person nominated by the Minister, or amendments to the Companys Memorandum and Articles of Association. Capital Information on the structure of the Companys share capital,
including the rights and obligations attaching to each class of shares, is set out in note 45 and in the Schedule on pages 389 to 390. On 14 May 2012, arising
from the non-payment of a dividend amounting to  280 million on the 2009 Preference Shares, the NPRFC became entitled to bonus shares in lieu and the
Company issued 3,623,969,972 new ordinary shares by way of a bonus issue to the NPRFC. As at 31 December 2012, some 35.7 million shares (0.007% of issued
ordinary shares), purchased in previous years were held as Treasury Shares; see note 47. Accounting policies The principal accounting policies, together with the basis of preparation of the financial statements, are set out on pages 193 to 217. Review of activities The Statement by the Chairman on page 4 to 5 and the
review by the Chief Executive Officer on pages 6 to 8 and the Management Report on pages 21 to 42 contain a review of the development of the business of the Company during the year, of recent events, and of likely future developments. Directors The following Board changes occurred with effect from the dates
shown: 

Mr. Declan Collier resigned as Non-Executive Director on 28 June 2012; 

Mr. Peter Hagan was appointed a Non-Executive Director on 26 July 2012; and 

Mr. Tom Foley was appointed a Non-Executive Director on 13 September 2012. The names of the Directors,
together with a short biographical note on each Director, are shown on pages 168 to 170. The appointment and replacement of Directors, and their powers, are
governed by law and the Articles of Association, and information on these is set out on pages 388 to 394.








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|LOGO |  | Governance and oversight  2. Report of the Directors
for the year ended 31 December 2012 |  | 






Directors and Secretarys Interests in the Share Capital The interests of the Directors and Secretary in the share capital of the Company are shown in note 62. Directors Remuneration The Companys policy with respect to
Directors remuneration is included in the Corporate Governance Statement on pages 179 to 180. Details of the total remuneration of the Directors in office during 2012 and 2011 are shown in note 62. Substantial Interests in the Share Capital The following substantial interests
in the Ordinary Share Capital (excluding shares held as Treasury Shares) had been notified to the Company at 14 May 2012: 

National Pensions Reserve Fund Commission 99.8% Corporate Governance The Directors Corporate Governance Statement appears on pages 173 to 184 and forms part of this Report. Additional information is included in the Schedule to the
Report of the Directors on page 381. Political Donations The Directors
have satisfied themselves that there were no political contributions during the year, which require disclosure under the Electoral Act, 1997. Books of Account The measures taken by the Directors to secure compliance with the Companys obligation to keep proper books of account are the use of appropriate systems
and procedures, including those set out in the Internal Control section of the Corporate Governance Statement on pages 182 and 183, and the employment of competent persons. The books of account are kept at the Companys Registered Office,
Bankcentre, Ballsbridge, Dublin 4, Ireland; at the principal offices of the Companys main subsidiary companies, as shown on page 410; and at the Companys other principal offices, as shown on those pages. Principal Risks and Uncertainties Information concerning the principal risks
and uncertainties facing the Company, as required under the terms of the European Accounts Modernisation Directive (2003/51/EEC) (implemented in Ireland by the European Communities (International Financial Reporting Standards and Miscellaneous
Amendments) Regulations 2005), is set out in the Risk Management section on pages 58 to 64. Branches outside the State The Company has established branches, within the meaning of EU Council Directive 89/666/EEC (implemented in Ireland by the European Communities (Branch Disclosures)
Regulations 1993), in the United Kingdom and the United States of America. The branch established in Canada is in the process of being closed. Auditor The Auditor, KPMG, has signified willingness to continue in office in accordance with Section 160(2) of the Companies Act, 1963. During 2012, the Board decided that a tender process relating to the appointment of the Auditor should be considered. Accordingly, the Audit Committee, on behalf of the
Board, has commenced a process to consider and evaluate proposals submitted from professional accountancy firms. The resulting recommendation will be put to shareholders for their approval at the 2013 Annual General Meeting. David Hodgkinson Chairman David Duffy Chief Executive Officer 26 March 2013








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Corporate Governance practices Allied Irish Banks, p.l.c. (AIB) is subject to the provisions of the Central Bank of Irelands Corporate Governance Code for Credit Institutions and
Insurance Undertakings (the Central Bank Code), including compliance with requirements which specifically relate to major institutions, which imposes minimum core standards upon all credit institutions and insurance
undertakings licensed or authorised by the Central Bank of Ireland. AIB believes it has robust governance arrangements, which include a clear organisational
structure with well defined, transparent and consistent lines of responsibility, effective processes to identify, manage, monitor and report the risks to which it is or might be exposed, adequate internal controls, including sound administrative and
accounting procedures, IT systems and controls. The system of governance is subject to regular internal review. AIBs corporate governance practices also
reflect Irish company law and, in relation to the UK businesses, UK company law, the Listing Rules of the Enterprise Securities Market of the Irish Stock Exchange, and certain provisions of the US Sarbanes Oxley Act of 2002. The Board of Directors The Board is responsible for the leadership, direction
and control of AIB and its subsidiaries (collectively referred to as AIB or the Group) and is accountable to shareholders for financial performance. There is a comprehensive range of matters specifically reserved for decision
by the Board. At a high level these include: 

appointing the Chairman and the Chief Executive Officer, and Senior Management, and addressing succession planning; 

ultimate responsibility for corporate governance; 

determining the Groups strategic objectives; 

monitoring progress towards achievement of the Groups objectives, and overseeing the management of the business, including control systems and risk management; and 

approving annual operating and capital budgets, major acquisitions and disposals, and monitoring and reviewing financial performance. The Board is responsible for approving high level policy and strategic direction in relation to the nature and scale of risk that AIB is prepared to assume in order to
achieve its strategic objectives. The Board ensures that an appropriate system of internal controls is maintained and reviews its effectiveness. Specifically the Board: 

sets the Groups Risk Appetite, incorporating risk limits; 

approves Risk Frameworks, incorporating risk strategies, policies, and principles; 

approves stress testing and capital plans under the Groups Internal Capital Adequacy Assessment Process (ICAAP); and 

approves other high-level risk limits as required by Credit, Capital, Liquidity and Market policies. The Board receives
regular updates on the Groups risk profile through the Chief Executive Officers monthly report, and relevant updates from the Chairman of the Board Risk Committee. An overview of the Committees activities is detailed on page 177. The Board is also responsible for endorsing the appointment of individuals who may have a material impact on the risk profile of the Group and monitoring on an
ongoing basis their appropriateness for the role. The removal from office of the head of a Control Function, as defined in the Central Bank Code, is also subject to Board approval. AIB has received significant support from the Irish State (the State) in the context of the financial crisis because of its systemic importance to the Irish
financial system. This support has taken various forms including capital injections, asset relief and various guarantees. As a result of the State support measures, the State holds c. 99.8% of the ordinary shares of the Company. The relationship
between AIB and the State as shareholder is governed by a relationship framework (the Framework). Within the Framework, the Board retains full responsibility and authority for all of the operations and business of the Group in accordance
with its legal and fiduciary duties and retains responsibility and authority for ensuring compliance with the regulatory and legal obligations of the Group. Chairman The Chairmans responsibilities include the leadership of the
Board, ensuring its effectiveness, setting its agenda, ensuring that the Directors receive adequate, accurate and timely information, facilitating the effective contribution of the Non-Executive Directors, ensuring the proper induction of new
directors, the ongoing training and development of all directors, and reviewing the performance of individual directors. Mr David Hodgkinson was appointed Executive Chairman on 27 October 2010 and Non-Executive Chairman with effect from
12 December 2011, following the appointment of Mr David Duffy as Chief Executive Officer. The role of the Chairman is separate from the role of the Chief
Executive Officer, with clearly-defined responsibilities attaching to each; these are set out in writing and agreed by the Board.








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Chief Executive Officer The
Chief Executive Officer is responsible for the day-to-day running of the Group, ensuring an effective organisation structure, the appointment, motivation and direction of senior executive management, and for the operational management of all the
Groups businesses. Mr David Duffy was appointed Chief Executive Officer on 12 December 2011 and was co-opted to the Board on 15 December 2011. Company Secretary The Directors have access to the advice and services of the
Company Secretary, Mr David OCallaghan, who is responsible for ensuring that Board procedures are followed and that applicable rules and regulations are complied with. Board meetings The Chairman sets the agenda for each Board meeting. The
Directors are provided with relevant papers in advance of the meetings to enable them to consider the agenda items, and are encouraged to participate fully in the Boards deliberations. Executive management attend Board meetings and make
regular presentations. The Board held eleven scheduled meetings during 2012, and ten additional out-of-course meetings or briefings. Attendance at Board meetings
and meetings of Committees of the Board is reported on below. During a number of Board meetings, the Non-Executive Directors met in the absence of the Executive Directors, in accordance with good governance standards. In addition to their attendance
at Board and Committee meetings, Non-Executive Directors attended Board meetings of AIB Group (UK) p.l.c., AIB Mortgage Bank and EBS Limited and held consultative meetings with the Chairman. Board membership It is the policy of the Board that a majority of the
Directors should be Non-Executive. At 31 December 2012, there were 9 Non-Executive Directors and 2 Executive Directors. The Board deems the appropriate number of Directors to meet the requirements of the business to be between 10 and 14.
Non-Executive Directors are appointed so as to maintain an appropriate balance on the Board, and to ensure a sufficiently wide and relevant mix of backgrounds, skills and experience to provide strong and effective leadership and appropriate
challenge to executive management. The names of the Directors, with brief biographical notes, are shown on pages 168 to 170. In the performance of their functions,
the Directors have a duty to have regard to the matters mentioned in section 4 of the Credit Institutions (Stabilisation) Act 2010 (the Act). The duty imposed by the Act is owed by the Directors to the Minister for Finance on behalf of
the Irish State, and takes priority over any other duty of the Directors to the extent of any inconsistency. Thereafter, all Directors are required to act in the best interests of the Group, and to bring independent judgement to bear in discharging
their duties as Directors. There is a procedure in place to enable the Directors to take independent professional advice, at the Groups expense. The Group
holds insurance cover to protect Directors and Officers against liability arising from legal actions brought against them in the course of their duties. Performance evaluation The Chairman meets annually with each Director
individually to review their performance. These reviews include discussion of, inter alia, the Directors individual contributions and performance at the Board and relevant Board Committees, the conduct of Board meetings, the performance of the
Board as a whole and its committees, compliance with the Director-specific provisions of the Central Bank Code, the requirements of the Central Banks Fitness and Probity Regulations, and other specific matters which the Chairman and/or
Directors may wish to raise. Attendance at Board and Committee meetings is one of a number of important factors considered in evaluating Directors performance, and a table showing each Board Members attendance at such meetings is shown
below and separately within the commentary on each of the Board Committees on the following pages.








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Attendance at scheduled Board and Board Committee MeetingsName

Board


AuditCommittee

Board RiskCommittee

RemunerationCommittee


Nominationand CorporateGovernanceCommitteeDirectors


A



B



A


B


A


B


A



B



A



BSimon Ball


11



11









12


11Bernard Byrne


11



11David Duffy


11



11Tom Foley


4



4



3


3








1



1Peter Hagan


5



5









4


4


1



1



1



1David Hodgkinson


11



11















4



4



6



6Jim OHara


11



10



13


13








4



3



6



6Dr Michael Somers


11



11









12


12Dick Spring


11



11









12


12










6



3Tom Wacker


11



11



13


13Catherine Woods


11



11



13


13


12


12Former DirectorsDeclan Collier


6



5



7


6








3



3Column A indicates the number of scheduled
meetings held during 2012 which the Director was eligible to attend; Column B indicates the number of meetings attended by each Director during 2012. The Board held eleven scheduled meetings during 2012, and ten additional out-of-course meetings or
briefings. Terms of appointment Non-Executive Directors
are generally appointed for a three-year term, with the possibility of renewal for a further three years; the term may be further extended, in exceptional circumstances, on the recommendation of the Nomination and Corporate Governance Committee. Mr Dick Spring was appointed Non-Executive Director in 2009 as a nominee of the Minister for Finance under the Irish Governments Credit Institutions
(Financial Support) Scheme 2008 (S.I. No. 411 of 2008). Dr Michael Somers was appointed Non-Executive Director in 2010 as a nominee of the Minister for Finance under the Irish Governments National Pensions Reserve Fund Act 2000 (as
amended) for a three year term to 31 December 2012. Dr Somers was reappointed a Non-Executive Director, under the same regime, for a further period of one year with effect from 1 January 2013. Following appointment, in accordance with the requirements of the Articles of Association, Directors are required to retire at the next Annual General Meeting
(AGM), and may go forward for reappointment, and are subsequently required to make themselves available for re-appointment at intervals of not more than three years. Since 2005, all Directors have retired from office at the AGM and have
offered themselves for reappointment with the exception of Messrs Somers and Spring. Under the terms of the Governments preference share investment, Messrs.
Somers and Spring are not required to stand for election or regular re-election by shareholders. Letters of appointment, as well as dealing with appointees
responsibilities, stipulate that a specific time commitment is required from Directors. A copy of the standard terms of the letter of appointment of Non-Executive Directors is available on request from the Company Secretary. The Board has determined that all Non-Executive Directors in office in December 2012, namely Mr Simon Ball, Mr Tom Foley, Mr Peter Hagan, Mr David Hodgkinson, Mr Jim
OHara, Dr Michael Somers, Mr Dick Spring, Mr Tom Wacker and Ms Catherine Woods are independent in character and judgement and free from any business or other relationship with the Company or the Group that could affect their judgement. In
2011, the Central Bank confirmed that Messrs Somers and Spring should be considered independent for the purposes of the Central Bank Corporate Governance Code.








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Induction and professional development There is an induction process for new directors. Its content varies between Executive and Non-Executive Directors. In respect of the latter, the induction is designed to
familiarise Non-Executive Directors with the Group and its operations, and comprises the provision of relevant briefing material, including details of the Groups strategic and operational plans, and a programme of meetings with the Chief
Executive Officer, the Leadership team and the Senior Management of businesses and support functions. A continuous programme of targeted and continuous professional development is in place for Non-Executive Directors. Board Committees The Board is assisted in the discharge of its duties by a
number of Board Committees, whose purpose it is to consider, in greater depth than would be practicable at Board meetings, matters for which the Board retains responsibility. The composition of such Committees is reviewed annually by the Board. A
description of these Committees, each of which operates under Terms of Reference approved by the Board, and their membership, is given later in this section. The minutes of all meetings of Board Committees are circulated to all Directors, for
information, with their Board papers, and are formally noted by the Board. This provides an opportunity for Directors who are not members of those Committees to seek additional information or to comment on issues being addressed at Committee level.
The Terms of Reference of the Audit Committee, the Board Risk Committee, the Nomination and Corporate Governance Committee, and the Remuneration Committee are available on AIBs website: www.aibgroup.com. In carrying out their duties, the Board
Committees are entitled to take independent professional advice, at the Groups expense, where deemed necessary or desirable by the Committee Members. Audit
Committee Current Members: Ms Catherine Woods, Chairman; Mr Tom Foley (from 13 September 2012); Mr Jim OHara; Mr Tom Wacker. Former Members during
the year: Mr Declan Collier (resigned from the Board 28 June 2012).  Member attendance during 2012:



A

BDeclan Collier

Former Member

7

6Tom Foley

Current Member

3

3Jim OHara

Current Member

13

13Tom Wacker

Current Member

13

13Catherine Woods

Current Member

13

13 Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the
number of meetings attended by each Member during 2012. The Audit Committee comprises Non-Executive Directors whom the Board has determined have the collective
skills and relevant financial experience to enable the Committee to discharge its responsibilities. The Audit Committee has oversight responsibility for: 

the quality and integrity of the Groups accounting policies, financial statements and disclosure practices; 

compliance with relevant laws, regulations, codes of conduct and conduct of business rules; 

the independence and performance of the External Auditor (the Auditor) and the Group Internal Auditor; and 

the adequacy and performance of systems of internal control and the management of financial and non-financial risks. These responsibilities are discharged through its meetings with and receipt of reports from management, the Auditor, the Chief Financial Officer, the Group Internal
Auditor, the Chief Risk Officer and the Head of Regulation and Compliance. The Sarbanes-Oxley Act requires that the Audit Committee membership includes an
audit committee financial expert, as defined in related SEC rules. The Board has determined that Ms Catherine Woods is an independent audit committee financial expert for these purposes. Ms Woods has accepted this
determination on the understanding that she has not thereby agreed to undertake additional responsibilities beyond those of a member and Chairman of the Audit Committee. During 2012, the Audit Committee met on thirteen occasions. The following, whilst not intended to be exhaustive, is a summary of the activities undertaken by the
Committee in the discharge of its responsibilities. The Committee: 

reviewed the Groups annual and interim financial statements prior to approval by the Board, including: the Groups accounting policies and practices; the minutes of the Group Disclosure Committee (an
executive committee whose role is to ensure the compliance of AIB Group Financial Information with legal and regulatory requirements prior to external publication); reports on compliance; effectiveness of internal controls; and the findings,
conclusions and recommendations of the Auditor and Group Internal Auditor; 

reviewed the scope of the independent audit, and the findings, conclusions and recommendations of the Auditor; 

satisfied itself through regular reports from the Head of Internal Audit, the Chief Financial Officer, the Chief Risk Officer, the Auditor and the Head of Governance and Assurance that the system of internal controls
over financial reporting was effective;








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

provided oversight in relation to the Auditors effectiveness and relationship with the Group, including agreeing the Auditors terms of engagement, audit plans and remuneration; 

reviewed and monitored the independence and objectivity of the Auditor, including approving, within pre-determined limits approved by the Board, the range and nature of non-audit services provided and related fees (note
16); 

provided assurance regarding the independence and performance of the Group Internal Audit function, through reviews of rolling quarterly updates on control issues and related remediating actions, and a monthly report
detailing Internal Audit reports issued during the previous month; the annual audit plan and related progress; and the adequacy of resources allocated to the function; the Chairman of the Committee met with the Head of Internal Audit and the Lead
Audit Partner between scheduled meetings of the Committee to discuss material issues arising; 

received rolling updates from the Chief Risk Officer and the Head of Governance and Assurance to satisfy itself that the Group was in compliance with all regulatory and compliance obligations and considered key
developments and emerging issues, particularly in respect of the Groups responsibilities under the Government Guarantee and Capital Subscription and Planning Agreements with the Minister, the operation of the Speak-Up process and key
interactions with regulators in the various jurisdictions; 

reviewed the minutes of all meetings of subsidiary companies Audit Committees, requesting and receiving further clarification on issues when required, and met with, and received annual reports from, the subsidiary
Audit Committee chairmen; and 

held formal confidential consultations during the year separately with the Lead Audit Partner, the Chief Risk Officer and the Head of Internal Audit, in each case with only Non-Executive Directors present. The Committee is also responsible for making recommendations in relation to the Head of Internal Audit, including appointment, replacement, and
remuneration, in conjunction with the Remuneration Committee, and confirming the Head of Internal Audits independence; the Committee meets with the Head of Internal Audit in confidential session, in the absence of management. The Head of
Internal Audit has unrestricted access to the Chairman of the Audit Committee. The following attend the Committees meetings by invitation: the Lead Audit
Partner; the Chief Financial Officer, the Chief Risk Officer; the Head of Internal Audit; and the Head of Governance and Assurance. Other senior executives also attend where appropriate. Board Risk Committee Current Members: Dr. Michael Somers, Chairman;
Mr. Simon Ball; Mr. Peter Hagan (from 26 July 2012) Mr. Dick Spring; and Ms. Catherine Woods.  Member attendance during 2012:



A

BSimon Ball

Current member

12

11Peter Hagan

Current member

4

4Dr Michael Somers

Current member

12

12Dick Spring

Current member

12

12Catherine Woods

Current member

12

12 Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the
number of meetings attended by each Member during 2012. The Board Risk Committee was established to assist the Board in proactively fostering sound risk governance
within the Group through ensuring that risks are appropriately identified and managed, and that the Groups strategy is informed by, and aligned with, the Board approved risk appetite. The Board Risk Committee comprises Non-Executive Directors whom the Board has determined have the collective skills and relevant experience to enable the Committee to
discharge its responsibilities. To ensure co-ordination of the work of the Board Risk Committee with the risk related considerations of the Audit Committee, the Chairman of the Audit Committee is also a member of the Board Risk Committee. The Board Risk Committee has responsibility for: 

providing oversight and advice to the Board in relation to current and potential future risks facing the Group and risk strategy in that regard, including the Groups risk appetite and tolerance; 

the effectiveness of the Groups risk management infrastructure; 

monitoring and reviewing the Groups risk profile, risk trends, risk concentrations and risk policies; 

considering and acting upon the implications of reviews of risk management undertaken by Group Internal Audit and/or external third parties. The responsibilities of the Committee are discharged through its meetings, receiving, commissioning and considering reports from the Chief Risk Officer, the Chief Credit
Officer, the Chief Financial Officer, the Head of Internal Audit, the Head of Governance and Assurance and other members of management.








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During 2012, the Board Risk Committee met on twelve occasions. The following, while not intended to be exhaustive, is a
summary of the key items considered, reviewed and/or approved or recommended by the Committee during the year: 

monthly reports from the Chief Risk Officer which provided an overview of key risks including liquidity and funding, capital adequacy, credit risk, market risk, regulatory risk, business risk, and related mitigants; 

periodic reports from the Chief Credit Officer regarding the credit quality, performance and outlook of key credit portfolios within the Group; 

items of a risk related nature, including: (a)
the governance, organisational and delegated authority framework; (b)
the risk appetite framework and risk appetite statement; (c)
the funding and liquidity strategy; (d)
risk frameworks and policies, including those relating to (i) credit risk, (ii) operational risk, (iii) financial risk, including market and pension risk, and (iv) compliance; (e)
the code of conduct and conflict of interest policy for employees; and (f) capital
planning including consideration of the quarterly, six monthly and annual ICAAP Reports and related firm  wide stress test scenarios as at 31 December 2011 and 30 June 2012; 

reports from management on a number of specific areas in order to ensure that appropriate management oversight and control was evident, including: (a) arrangements for dealing with customers in difficulty, including debt settlement strategies and preparations for  personal
insolvency legislation and amendments to the Irish Bankruptcy Law; (b) Eurozone risks and managements contingency
planning in that regard; (c) significant operational risk events, potential business knock out risks, and the
Groups business continuity  planning arrangements; (d) credit risk performance and trends, including days past due
and monthly overview of significant credit  transactions; and (e) regulatory developments and business preparedness for
changes to regulatory codes and directives, including  Consumer Protection Code, Fitness and Probity and Anti-Money Laundering/Financial Sanctions; 

presentations from the individual businesses on their high level risks and related mitigants; 

managements plans and progress in meeting the actions required in the Central Bank of Irelands Risk Mitigation Programme; and 

the Groups Risk Management infrastructure including actions taken to strengthen the Groups risk management governance, people skills and system capabilities, and to address the risk management related
recommendations arising from the Central Bank of Irelands Supervisory Review and Evaluation Process. The Committee is also responsible for
making recommendations in relation to the Chief Risk Officer, including appointment, replacement, and remuneration, in conjunction with the Remuneration Committee, and confirming the Chief Risk Officers independence; the Committee meets with
the Chief Risk Officer in confidential session, in the absence of management. The Chief Risk Officer has unrestricted access to the Chairman of the Board Risk Committee. The following attend the Committees meetings by invitation: the Lead Audit Partner; the Chief Executive Officer, the Chief Financial Officer, the Chief Risk
Officer, the Chief Credit Officer, the Head of Internal Audit, and the Head of Governance and Assurance. Other senior executives also attend where appropriate. Nomination and Corporate Governance Committee Current Members:
Mr. David Hodgkinson (Chairman); Mr. Jim OHara, Mr. Peter Hagan (from 26 July 2012); and Mr. Dick Spring.  Member attendance during 2012:



A

BPeter Hagan

Current member

1

1David Hodgkinson

Current member

6

6Jim OHara

Current member

6

6Dick Spring

Current member

6

3 Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the
number of meetings attended by each Member during 2012. The Nomination and Corporate Governance Committees responsibilities include: recommending candidates
to the Board for appointment as Directors; reviewing the size, structure and composition of the Board and the Board Committees, reviewing succession planning, and monitoring the Groups responsibilities and activities concerning staff, the
marketplace (including customers, products and suppliers), the environment and the community.








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The search for suitable candidates for the Board is a continuous process, and recommendations for appointment are made,
based on merit and objective criteria, following an appraisal process and interviews. The Committee is also responsible for approving corporate-giving budgets and any substantial philanthropic donations, and reviewing the Groups corporate
governance policies and practices. The Committee met six times during 2012. Messrs Tom Foley and Peter Hagan were nominated by the Committee to the Board and appointed Non-Executive Directors on 13 September 2012 and 26 July 2012,
respectively, following a selection process that included the services of an external executive search consultancy firm. Remuneration Committee Members: Mr Jim OHara (Chairman from 14 August 2012); Mr Tom Foley (from 13 September 2012); Mr Peter Hagan (from 26 July 2012); and Mr David
Hodgkinson. Former Members during the year: Mr Declan Collier (former Committee Chairman, resigned from the Board 28 June 2012).  Member attendance during 2012:



A

BDeclan Collier

Former member

3

3Tom Foley

Current member

1

1Peter Hagan

Current member

1

1David Hodgkinson

Current member

4

4Jim OHara

Current member

4

3 Column A indicates the number of Committee meetings held during 2012 which the Member was eligible to attend; Column B indicates the
number of meetings attended by each Member during 2012. AIBs remuneration policies are set and governed by the Remuneration Committee whose purpose, duties
and membership are set by its Terms of Reference which may be viewed on the website www.aibgroup.com. The scope of the Committees activities is broad based, ranging from setting pay policy to determining appropriate pension arrangements. The Remuneration Committees responsibilities include recommending to the Board: Group remuneration policies and practices; the remuneration of the Chairman of the
Board (which matter is considered in his absence); and, performance-related and share-based incentive schemes when appropriate. The Committee also determines the
remuneration of the Chief Executive Officer, and, in consultation with the Chief Executive Officer, the remuneration of other Executive Directors, when in office, and the other members of the Executive Leadership Team, under advice to the Board.
Details of the total remuneration of the Directors in office during 2012 and 2011 are shown in note 62. The Remuneration Committee is also required to review the remuneration components of Identified Staff who are individuals classified by AIB as
material risk takers in accordance with the Remuneration Guidelines of the European Banking Authority (EBA). Remuneration matters of a significant nature are also considered by the Board. The Committee met four times during 2012. Remuneration Policy and Governance The Terms of Reference of the Remuneration Committee were reviewed in 2012 by the Committee following which, changes were made, with Board approval, to reflect
relevant provisions of the Central Bank Code and standardisation of Group documentation. The governance and scope of AIBs remuneration policies and practices include all financial benefits for employees and extend to all areas of the Group. The adoption of remuneration policies and practices, which are both fair and competitive and that support sustainable performance over the long-term, is a key
responsibility of the Board. The Board recognises the need to take account of appropriate input from AIBs control functions in its decision making, and to ensure that remuneration policies and practices are consistent with and promote
effective risk management, and that they do not encourage excessive risk taking but support the maintenance of a sound capital base and the required liquidity levels. The 2011 review of remuneration policies took account of the remuneration
requirements of the Capital Requirements Directive- CRD III and the related EBA Guidelines, which came into force in January 2011. Following this, a Remuneration Disclosure Report was published in June 2012 within AIBs Pillar 3 Disclosure
Report, in accordance with the EBA Guidelines, which summarised AIBs principal remuneration policies and practices and which provided aggregated remuneration data for Identified Staff in 2011. The list of Identified Staff was compiled in
consultation with the relevant business areas, control functions and support areas to agree those individuals who were considered to have a material impact on AIBs risk profile. Consideration was given to the extent of individuals
reporting lines and the degree to which individuals decision making was subject to control and approval through credit committees or trading limits. The Remuneration Disclosure Report for 2012 will be included in AIBs 2012 Pillar 3
Disclosure Report.








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While the design features required by the EBA are now included in AIBs remuneration policy there was little scope in
practice to implement the design requirements of the incentive schemes because of the financial position of the Group, and the constraints on remuneration arising from AIBs commitments under the Subscription and Placing Agreements between AIB
and the National Pensions Reserve Fund Commission (NPRFC), the National Treasury Management Agency (NTMA) and the Minister for Finance. There were no bonuses or shares awarded in 2012. Any incentive schemes implemented in
future will be structured in line with the new regulatory requirements and AIBs revised remuneration policy. Remuneration policy, in general, is strongly
influenced by the Groups significant reliance on State support and the requirements and constraints arising from the Subscription and Placing Agreements. Central Bank review The Central Bank of Ireland completed a review of
AIBs remuneration policies and practices in September 2011 with the primary objective of assessing the level of AIBs compliance with the provisions of the remuneration guidelines issued by the EBA. The findings of the review and required
actions were included in a risk mitigation programme. While no material issues were identified by the review, the Central Bank requested that a number of the EBA requirements be more clearly expressed in AIBs Remuneration Policy to ensure AIB
was fully compliant with all aspects of the Guidelines. These changes were made in June 2012 and specifically included: 

Ensuring that incentive awards are restricted to maintain an adequate capital base and also when in receipt of State support; 

An adjustment to incentive pools for current and future risk; and 

The inclusion of AIBs criteria and definition of Identified Staff. Voluntary severance programme The Group announced the terms of a voluntary severance programme, which includes both an early retirement scheme and a voluntary severance scheme in May 2012, with an
objective of achieving annual cost savings of  170 million equating to a reduction of c. 2,500 in overall staff numbers. The voluntary severance terms were consistent with those available to staff in other banks in receipt of State aid and was based on either 3 weeks annualised
salary for each year of service plus statutory redundancy, or 4 weeks annualised salary for each year of service, inclusive of statutory redundancy, both with an annualised salary cap of  225,000. The scheme was introduced on a phased basis, according to business needs and capacity, with the result that not all areas of the business were immediately within the scope of the voluntary
severance scheme. An early retirement scheme was opened for staff in Defined Benefit Pension Schemes in the Republic of Ireland and the UK, with early retirement on
a pro rata, actuarially reduced basis, based on pensionable service to the date of leaving. The Group reduced the impact of actuarial reduction by an amount broadly equivalent to the comparable voluntary severance payment. A strong level of interest
was expressed in the scheme with early retirement dates phased to December 2013. There were 1,257 departures under the early retirement scheme and 487 departures
under the voluntary severance scheme in 2012. Remuneration review A
reduction of up to 15% in salary and pay related allowances was applied to those on the Leadership Team effective from 1 September 2012. The salary of the Chief Executive Officer was reduced from  500,000 to  425,000 during the year while the salaries of the members of the Leadership Team are managed by the Remuneration Committee in accordance with
AIBs obligations under the Subscription and Placing agreements and are in a range of  200,000 to  400,000 in accordance with the recommendations of the
Covered Institutions Remuneration Oversight Committee (CIROC). AIBs remuneration spend continued to be closely managed in 2012, with salary
increases restricted principally to retaining key staff at risk to the market particularly in IT, business analysis and other financial services control functions. In summary, throughout 2012: 

There were no general salary increases or increments paid; 

There were no bonus schemes or share based incentives in operation; and 

Out of course approved salary increases were managed within agreed budgetary parameters. Pay and Benefits Review A comprehensive review of Pay and Benefits was undertaken in 2012 to assist in reducing the Groups overall cost. Three main areas were identified and
targeted for action  salary, benefits and the Defined Benefit Pension Scheme. The most significant of these changes are as follows: 

In addition to the changes applied to the Leadership Team, a reduction of up to 10% and 7.5% in salary and pay related allowances was applied to Executives and Senior Managers, effective from 1 September 2012 and
1 January 2013 respectively, relative to market benchmarks. The Company also announced a general pay freeze until the end of 2014;








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Pay and Benefits Review(continued) 

Allowances have been reduced and apart from a small number of high mileage drivers, company cars have been discontinued. Benefits such as club subscriptions and preferential staff deposit and lending rates, have also
been eliminated; and 

Transfer of all employees in Ireland and the UK who are currently members of a defined benefit pension scheme (including hybrid arrangements) to a defined contribution pension scheme. This change will have no impact on
the benefits accrued up to the date of transfer. The Group and the Irish Bank Officials Association (the IBOA) agreed to refer the issues to the Labour Relations Commission. These discussions are ongoing and implementation of the new
pension arrangements has been deferred pending the completion of this process. A review of Non-Executive Directors fees has also been
undertaken. Directors remuneration Details of the total
remuneration of the Directors in office during 2012 and 2011 are shown in note 62. Relations with shareholders The Group has a number of procedures in place to allow its shareholders and other stakeholders to stay informed about matters affecting their interests. In addition to
this Annual Financial Report, which is only sent to those shareholders who request it, the following communication tools are used by the Group: Summary
Shareholders Report The Shareholders Report (the Report) is a summary version of AIBs main Annual Financial Report. This Report,
which covers AIBs performance in the previous year, is sent to shareholders who have opted to receive it instead of the main Annual Financial Report. This summary report does not form part of the Annual Financial Report or Form 20-F and is
referred to for reference purposes only. Website The website,
www.aibgroup.com, contains, for the previous five years, the Annual Financial Report, the Interim Report/Half-yearly Financial Report, and the Annual Financial Report on Form 20-F. The Groups presentation to fund managers and analysts of
annual and interim financial results are available on the internet, and may be accessed on the Companys website: www.aibgroup.com. Since 2009, the Annual Financial Report and the Annual Report on Form 20-F have been combined in the form of
this Annual Financial Report. None of the information on the website is incorporated in, or otherwise forms part of, this Annual Financial Report. Annual
General Meeting (AGM) All shareholders are invited to attend the AGM and to participate in the proceedings. At the AGM, it is practice to give a
brief update on the Groups performance and developments of interest for the year to date. Separate resolutions are proposed on each separate issue and voting is conducted by way of poll. The votes for, against, and withheld, on each
resolution, including proxies lodged, are subsequently published on AIBs website. Proxy forms provide the option for shareholders to direct their proxies to withhold their vote. It is usual for all Directors to attend the AGM and to be
available to meet shareholders before and after the meeting. The Chairmen of the Boards Committees are available to answer questions about the Committees activities. A help desk facility is available to shareholders attending. The
Companys 2013 AGM is scheduled to be held on 20 June 2013, at the Companys Head Office at Bankcentre, Ballsbridge, Dublin 4, and it is intended that the Notice of the Meeting will be posted to shareholders at least 21 clear days
before the meeting, in line with the requirements of Irish Company law.








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Accountability and Audit Accounts and Directors Responsibilities The Statement concerning the
responsibilities of the Directors in relation to the Accounts appears on page 381. Going Concern The Groups activities are subject to risk factors and uncertainties as set out on pages 58 to 64. Notwithstanding these risk factors and uncertainties, the Directors have prepared the financial statements on a going concern basis. In making its assessment of the
Groups ability to continue as a going concern, the Board of Directors have taken into consideration the significant economic and market risks and uncertainties that continue to impact the Group. These include the ability to access Eurosystem
funding and Central Bank liquidity facilities to meet liquidity requirements. In addition, the Directors have considered the current level of capital and the potential requirement for capital in the period of assessment. Furthermore, the Directors
considered the risks and uncertainties impacting the Eurozone and have taken into account the developments taken at EU level which saw a marked easing of the eurozone sovereign debt crisis and improvements in conditions in eurozone financial markets
during the second half of 2012. Internal Controls The Directors
acknowledge that they are responsible for the Groups system of internal control. They acknowledge that systems of internal control are designed to manage, rather than eliminate, the risk of failure to achieve business objectives, and can
provide only reasonable and not absolute assurance against material misstatement or loss. The Groups system of internal control is based on the following: Governance and oversight 

AIB Board in place and has ultimate responsibility for the governance of all risk taking activity across the Group. The Board is supported by a number of subcommittees including a Board Risk Committee, an Audit
Committee, a Remuneration Committee and a Nomination and Corporate Governance Committee. 

The Board Risk Committee evaluates material risks and risk management across the Group and risk disclosures made by the Group. 

At the executive level, a Leadership Team is in place with responsibility for establishing business strategy, risk appetite, enterprise risk management and control. 

The Executive Risk Committee which is a subcommittee of the Leadership Team reviews the effectiveness and application of the Groups risk frameworks and policies, risk profile, risk concentrations and all breaches
of Board approved risk appetite and limits. 

The Group Audit Committee of the Board reviews various aspects of control, including the design and operating effectiveness of internal control over the financial reporting framework in compliance with the requirements
of Section 404 of the Sarbanes-Oxley Act, the Groups statutory accounts and other published financial statements and information, and ensures that no restrictions are placed on the scope of the statutory audit or the independence of the
Internal Audit and Regulatory Compliance functions. 

There is involvement at all meetings of the Audit and Board Risk Committees by the Chief Financial Officer, Chief Risk Officer and Group Internal Auditor. 

The Group operates a three lines of defence framework in the delineation of accountabilities for risk governance. 

AIBs remuneration policies are set and governed by the Remuneration Committee whose purpose, duties and membership are to ensure that remuneration policies and practices are consistent with and promote effective
risk management. 

There is an independent Group Internal Audit function which is responsible for independently assessing the effectiveness of the Groups corporate governance, risk management and internal controls and which reports
directly to the Chair of the Audit Committee. 

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Risk Management 

A Board approved Risk Appetite Statement (RAS) sets the limits of risk appetite associated with the Groups strategic objectives. The RAS is reviewed at least annually by the Board and more frequently
if required. Risk policies and procedures are updated where appropriate to reflect the limits of the risk appetite. 

AIBs approach to managing risk and compliance matters are set out in a suite of policy documents that forms part of the AIB policy framework which are individually aligned with the RAS and are Board approved. 

AIB has adopted an Enterprise Risk Management approach to identifying, assessing and managing risks which builds on the three lines of defence governance framework and is supported by a risk management framework and
policy architecture which are currently under development. 

The Groups risk management framework is also supported by the underlying Group Risk committees comprising Asset and Liability Committee (ALCo), Credit Risk Committee (CRC), Operations Risk
Committee (ORC) and the Compliance Committee. Each of these committees is responsible for identifying actions to support robust risk management in line with the Groups risk appetite. 

A comprehensive annual budgeting and financial reporting system is in place, which incorporates clearly-defined and communicated common accounting policies and financial control procedures, including those relating to
authorisation limits, capital expenditure and investment procedures. 

Roles and responsibilities for management and staff are outlined via a clearly-defined organisational management structure, with defined lines of authority and accountability. 

AIBs Internal Capital Adequacy Assessment Process (ICAAP) has been developed which determines the adequacy and appropriateness of capital levels based on the Groups identification and assessment
of the material risks to which it is exposed. Risk identification 

Key internal and external risks are identified and assessed throughout AIB through a combination of top-down and bottom-up risk assessment processes. The key risks to the organisation are defined within the AIB risk
universe and are continually updated reflecting the current operating and risk environment. 

The Groups risk identification and assessment framework is supported by a framework of stress testing, scenario analysis and sensitivity analysis. The Group undertakes a regular program of stress testing across
all of the material risks to meet internal and regulatory requirements. Risk control and monitoring 

There is a centralised risk (and compliance) control function, headed by the Chief Risk Officer (CRO) who is responsible for ensuring that risks are identified, measured, monitored and reported on, and for
reporting on risk mitigation actions. 

The Risk function is responsible for establishing and embedding risk management frameworks, ensuring that material risk policies are reviewed, and reporting on adherence to risk limits as set by the Board of Directors 

The Groups risk profile is measured against its risk appetite on a monthly basis and reported to the Executive Risk Committee and Board Risk Committee via the monthly CRO report. Material breaches of risk appetite
are escalated to the Board and the Central Bank of Ireland (the Central Bank). 

The centralised Credit function is headed by a Chief Credit Officer who reports to the CRO. 

There is an independent Compliance function which provides advisory services to the Group and which monitors and reports on prudential, conduct of business and financial crime compliance and forthcoming regulations
across the Group, and on managements attention to compliance matters. 

AIB staff who perform Pre-Approved Controlled functions/Controlled functions meet the required standards as outlined in AIBs Fitness and Probity programme. 

There is an independent Group Internal Audit function which is responsible for independently assessing the effectiveness of the Groups corporate governance, risk management and internal controls and which reports
directly to the Group Audit Committee. Taking the above into account, the Directors are satisfied: 

that there is a clear organisational structure which provides effective oversight of the activities of the Group; 

that processes are in place to identify, manage, monitor and report on risks; 

that adequate internal control mechanisms, including sound administrative and accounting procedures, IT systems and controls are in place, which are subject to on-going improvement initiatives to further strengthen such
systems; 

that the remuneration policies and practices are consistent with and promote sound and effective risk management; 

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Additional requirements in the United States Management is responsible for establishing and maintaining adequate internal control over financial reporting (as defined in Rule 13a-15(f) under the US Exchange Act).
Management has assessed the effectiveness of the Groups internal control over financial reporting as of 31 December 2012, based on the criteria set forth by the US Committee of Sponsoring Organisations of the Treadway Commission in their
publication Internal Control - Integrated Framework. Based on this assessment, management believes that, as of 31 December 2012, the Groups internal control over financial reporting is effective. There have been no changes in
the Groups internal control over financial reporting during 2012 that has materially affected or is reasonably likely to materially affect the Groups internal control over financial reporting. In addition to the need for such internal controls over financial reporting, the SEC has adopted somewhat broader requirements designed to ensure that reporting
companies, such as AIB, have adequate disclosure controls and procedures in place. As of 31 December 2012, the Group carried out an evaluation, under the supervision of and with the participation of the Groups management,
including the Chief Executive Officer and the Chief Financial Officer, of the effectiveness of the design and operation of the Groups disclosure controls and procedures. There are inherent limitations to the effectiveness of any system of
disclosure controls and procedures, including the possibility of human error and the circumvention or overriding of the controls and procedures. Accordingly, even effective disclosure controls and procedures can only provide reasonable assurance of
achieving their control objectives. Based upon, and as of the date of the Groups evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the disclosure controls and procedures are effective in all material respects
to ensure that information required to be disclosed in the reports which the Group files and submits under the US Exchange Act is recorded, processed, summarised and reported as and when required. Code of Conduct In June 2012 the Group adopted a Code of Conduct that
applies to all employees. This replaced the previous code of business ethics. A copy of the Code is available on the Group website at www.aibgroup.com/investorrelations. (The information on this website is not incorporated by reference into this
document). The Code of Conduct sets out the key standards for behaviour and conduct that apply to all employees, and includes particular requirements regarding responsibilities of management for ensuring that business and support activities are
carried out to the highest standards of behaviour. The application of the Code of Conduct is underpinned by policies, practices and training which are designed to ensure that the Code is understood and that all employees act in accordance with it. As part of the Code implementation, AIB encourages its employees to raise any concerns of wrongdoing through a number of channels, both internal and external. One
such channel includes a confidential external helpline. Employees are assured that if they raise a concern in good faith, AIB will not tolerate any victimisation or unfair treatment of the employee as a result. The Code of Conduct and supporting policies are subject to annual review and update to the Board.








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4.1 Current climate of regulatory change Globally, regulators continue to implement reforms arising from the financial crisis. In the banking sector, the focus is on supporting the stability of the banking
system and ensuring appropriate resolution and recovery mechanisms are in place. Regulators worldwide have adopted a more intrusive style of regulation with a strong focus on sanctions for breaches of regulatory requirements. 4.2 Ireland Overview of financial services
legislation The Central Bank Reform Act 2010 was brought into operation by the Irish Minister for Finance (the Minister) on 1 October 2010.The
Central Bank Reform Act 2010 created a single, fully-integrated Central Bank of Ireland (Central Bank) with a unitary board, the Central Bank Commission, chaired by the Governor of the Central Bank. The Central Bank (Supervision and
Enforcement) Bill was published in mid 2011. The main purposes of the Bill are to (a) provide enhanced powers to the Central Bank for the supervision of regulated financial service providers and (b) provide enhanced powers to the Central
Bank for the enforcement of financial services legislation. It is expected that the Bill will be enacted in 2013. The Central Bank is responsible for the: 

prudential supervision and regulation of a range of banking and financial services entities in Ireland, including credit institutions; 

investment firms, stockbroking firms, payment institutions, insurance companies and credit unions; 

conduct of business of such financial services entities, including the protection of consumer interests; and 

overall stability of the financial system. The Central Bank and Financial Services Authority of Ireland Act 2004
established the Financial Services Ombudsmans Bureau to deal with certain complaints about financial institutions. The Credit Institutions (Stabilisation) Act
2010 was signed into law on 21 December 2010.The Act provides the legislative basis for the reorganisation and restructuring of the Irish banking system as agreed in the joint EU/IMF Programme for Ireland. The Act empowers the Minister
following consultation with the Governor of the Central Bank of Ireland, to propose any of a number of Stabilisation Orders that the Minister believes is necessary to stabilise a particular relevant institution (including its group companies). A
proposed Stabilisation Order must be confirmed by the Irish High Court. The Act also imposes new duties on the directors of an institution and sets out matters to which directors must have regard in the performance of their functions. These include
protecting the interests of the taxpayers, restoring confidence in the banking sector and facilitating the availability of credit in the economy of the State. The provisions of the Act were to cease to have effect on 31 December 2012 unless
otherwise extended. The Act was extended and remains in effect until the end of 2014, unless further extended in due course. The Central Bank and Credit
Institutions (Resolution) Act came into force in 2011. It provides a framework for the resolution of Irish banks and other Irish credit institutions encountering financial difficulties and not covered under the Credit Institutions (Stabilisation)
Act, 2010. Other legislative measures in the context of the financial crisis that commenced in 2008, including the Credit Institutions (Financial Support) Scheme
2008, the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 and the National Asset Management Agency Act 2009, are described in note 63(g) Related party transactions - Summary of relationship with the Irish Government.
These pieces of legislation and associated regulations provide for a limited-duration State guarantee of many deposits in certain Irish credit institutions, including Allied Irish Banks, p.l.c. and some of its subsidiaries, subject to any applicable
deposit protection scheme; a limited-duration State guarantee of certain other eligible liabilities issued by a relevant institution, including Allied Irish Banks, p.l.c. and some of its subsidiaries; and a State vehicle for the acquisition of many
land and development-related loans from certain Irish credit institutions, including Allied Irish Banks, p.l.c. and some of its subsidiaries. The Credit
Institutions (Financial Support) Scheme 2008 expired in September 2010. The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 has since been in operation subject to six-monthly reviews. On 26 February 2013, however, the Minister
announced that this Scheme will end for all new liabilities, with effect from midnight on 28 March 2013 (note 69). The Central Bank of Ireland (the
Central Bank) The Central Bank has a wide range of statutory powers to enable it to effectively regulate and supervise the activities of financial
institutions in Ireland including the power to carry out inspections. Features of the regulatory regime include prudential regulation and codes of conduct, each of which is addressed in more detail below. The Central Bank also has wide-ranging
powers of inspection: inspectors appointed by the Central Bank may enter the relevant premises, take documents or copies, require persons employed in the business to provide information and order the production of documents. In cases of extreme
concern, the Central Bank may direct a licence-holder to suspend its business activity for a specified period and may also intervene in the management or operation of an entity. The Central Bank Reform Act 2010 contains a number of provisions which impact the regulation of credit institutions, including powers for the Central Bank to regulate
sensitive or influential appointments in financial institutions. This includes the power to prevent the








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appointment of a person from performing a controlled function (as defined) or to remove or suspend a person from the performance of a controlled function, where the Central Bank is
satisfied that the person is not a fit and proper person to perform such a function. The Central Bank introduced Regulations and Standards governing the new fitness and probity regime in 2011. On 8 November 2010, the Central Bank issued new corporate governance requirements for credit institutions and insurance undertakings, which impose minimum core
standards upon all credit institutions, including Allied Irish Banks p.l.c., and insurance undertakings licensed or authorised by the Central Bank. Additional requirements apply to institutions that are designated as major institutions
by the Central Bank. The Central Bank has extensive enforcement powers including the ability to impose administrative sanctions directly on financial institutions
for failure to comply with regulatory requirements (including codes of conduct and practice), subject to a right of appeal by the affected institution to the Irish Financial Services Appeals Tribunal and a further appeal to the Irish High Court.
Such administrative sanctions may include a caution or reprimand, financial penalties (not exceeding  5 million in the case of a firm or  0.5 million in the case of an individual) and a direction disqualifying a person from being concerned in the management of a regulated financial service provider. Banking Legislation The banking regulatory code in Ireland is comprised
principally of the Central Bank Acts; regulations made under the European Communities Act 1972; and regulatory notices and codes of conduct issued by the Central Bank. Various Statutory Instruments and regulations made by the relevant Government
minister and regulatory notices made by the Central Bank implement in Ireland the substantial range of European Union directives relating to banking supervision and regulation, including the Capital Requirements Directive (CRD). To the
extent that areas of banking activity in Ireland are the subject of EU regulations or directives, the provisions of Irish banking law reflect the requirements of those EU instruments. The Central Bank Acts regulate the conduct of banking business in Ireland and provide that banking business may only be carried on by the holder of a banking licence or
an EU/European Economic Area entity which exercises passport rights to carry on business in Ireland. Every Irish licensed bank is obliged to draw up and publish its annual financial statements in accordance with the European Communities
(Credit Institutions: Accounts) Regulations 1992 (as amended by the European Communities (Credit Institutions) (Fair Value Accounting)) Regulations 2004). As a listed entity, Allied Irish Banks, p.l.c. is required to prepare its financial statements
in accordance with IFRS endorsed by the European Union (as applied by the European Communities (International Financial Reporting Standards and Miscellaneous Amendments) Regulations 2005) and with those parts of the Companies Act 1963 to 2010 that
are applicable to companies reporting under IFRS; and with article 4 of the EU Council Regulation 1606/2002 of 19 July 2002. Allied Irish Banks, p.l.c. holds a
banking licence and is authorised as a credit institution. AIB Mortgage Bank holds a banking licence and is registered as a designated mortgage credit institution. There are no conditions attached to AIBs licences or authorisations that are
not market standard conditions. EBS Limited (EBS) became a wholly owned subsidiary of Allied Irish Banks, p.l.c. on 1 July 2011. EBS holds a
banking licence and is authorised as a credit institution. EBS Mortgage Finance, a wholly owned subsidiary of EBS, holds a banking licence and is registered as a designated mortgage credit institution. There are no conditions attached to EBS
licences or authorisations that are not market standard conditions. Capital Requirements The Group is subject to applicable EU directives, including those that relate to capital adequacy. The Capital Requirements Directive (CRD) reflects the Basel
II rules on capital measurement and capital standards. It came into force on 1 January 2007 and introduced a revised supervisory framework in the EU designed to promote the financial soundness of credit institutions and investment firms. The
CRD governs, among other topics, the amount and quality of capital that credit institutions and investment firms hold against the risks that they take. The CRD has been transposed into Irish law by the European Communities (Capital Adequacy of
Credit Institutions) Regulations 2006 (CRD Regulations), as amended principally in 2009 (concerning the regulation of large exposures) and in 2010 (regarding the capital requirements for the trading book and for re-securitisations and
subsequently in respect of the further regulation of large exposures and the introduction of new pan-EU supervisory arrangements and crisis management). The Central
Bank has powers to enforce the CRD Regulations in the context of its prudential supervision of credit institutions and investment firms. The CRD Regulations set the minimum capital requirements for all entities licensed by the Central Bank;
consequently the Group regularly interacts with the Central Bank on an ongoing basis ensuring that it meets the capital adequacy requirements to which it is subject. The Central Bank may, from time to time, require a credit institution or investment
firm to target a specified ratio, or maintain a certain minimum capital ratio, based on its assets and its liabilities, which may be expressed to apply to all licence-holders of a specified category or categories, to the total assets or total
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Markets in Financial Instruments Directive (MiFID) MiFID was transposed into Irish law by the Markets in Financial Instruments and Miscellaneous Provisions Act 2007 and the European Communities (Markets in Financial
Instruments) Regulations 2007, as amended (together the MiFID Regulations). The MiFID Regulations regulate the provision of MiFID Services in respect of financial instruments and apply both to credit institutions and to investment firms
(including stockbroking firms). MiFID Services include the provision of investment advice, portfolio management, execution of client orders and others. A number of
financial services that do not come within the definition of MiFID Services (such as the administration of collective investment schemes) are subject to the requirements of the Investment Intermediaries Act 1995 (IIA). Each relevant
Group company ensures that it fulfils its obligations under MiFID, the MiFID Regulations and the IIA, as appropriate, on an ongoing basis and ensures that it holds the appropriate authorisation for its business at all times. The following
subsidiaries of Allied Irish Banks, p.l.c.; AIB Capital Markets p.l.c.; AIB Investment Managers Ltd.; AIB Corporate Finance Ltd provide MiFID Services and each is authorised as an investment firm under the MiFID Regulations. Allied Irish Banks,
p.l.c. also complies with the MiFID Regulations where it provides MiFID Services. It should be noted that AIB Investment Managers Ltd. was disposed of during 2012. In addition, AIB Capital Markets p.l.c. voluntarily surrendered its MiFID
authorisation during 2012. Other Financial Services Companies In
addition to the companies listed above, the Group includes a number of other financial services companies regulated by the Central Bank. AIB Mortgage Bank is a designated mortgage credit institution under the Asset Covered Securities Act 2001 (as
amended), and is permitted to issue mortgage covered securities which are secured by a statutory preference over covered assets (principally, residential mortgage loans) comprised in a cover-assets pool. In addition to the role of the Central Bank,
the activities of a credit institution that is designated for the purposes of the Asset Covered Securities Act 2001 (as amended) are subject to close oversight by an independent cover-assets monitor appointed by the credit institution and approved
by the Central Bank of Ireland. The principal role of the cover-assets monitor is to ensure that the assets maintained in the covered assets pool are sufficient to provide adequate security to the holders of the asset covered securities. AIB Leasing
Ltd. is authorised as a retail credit firm under the Central Bank Act, 1997. AIB Insurance Services Ltd. is authorised as an insurance intermediary under the Investment Intermediaries Act, 1995. On 1 July 2011, AIB acquired EBS Limited including EBS Mortgage Finance and Haven Mortgages Limited, both of which are 100% owned subsidiaries of EBS. EBS Limited
is authorised as a credit institution. EBS Mortgage Finance is a designated mortgage credit institution under the Asset Covered Securities Act, 2001 (as amended). Haven Mortgages Limited is authorised as a retail credit firm under the Central Bank
Act, 1997. Through a joint venture with Aviva Group Ireland, p.l.c., Allied Irish Banks, p.l.c. indirectly owns 24.99% of two life assurance undertakings; Ark Life
Assurance Ltd. and Aviva Life and Pensions Ireland Ltd. In addition, Allied Irish Banks, p.l.c. indirectly owns 30% of Aviva Health Insurance Ireland Ltd., a regulated non-life insurance undertaking. These undertakings must comply with the
provisions of legislation including the Insurance Acts 1909 to 2009 and the European Communities (Life Assurance) Framework Regulations 1994 (as amended) or European Communities (Non-Life Assurance) Framework Regulations 1994, as relevant. Further,
the European Communities (Insurance Mediation) Regulations 2005 have implemented the EU Directive on Insurance Mediation and lay down rules for undertaking insurance and reinsurance mediation, as well as prescribing registration requirements for
persons who wish to carry out insurance mediation business or act as an insurance intermediary or as a reinsurance intermediary. Codes of conduct including
Consumer Protection Code The Central Bank has issued a number of codes of conduct, codes of practice and other requirements applicable to credit institutions
and other regulated financial services entities (including investment firms, insurance undertakings and intermediaries). These codes address a substantial range of requirements including supervisory and reporting, corporate governance, conduct of
business, advertising, disclosure and record retention requirements. The Central Bank introduced a revised Consumer Protection Code, effective 1 January 2012. This Code imposes detailed rules on regulated financial services entities operating
in Ireland in relation to non-MiFID investment, insurance and banking services provided. In addition, the Central Bank has imposed statutory Codes of Conduct in relation to business lending to small and medium-sized enterprises, dealing with
residential mortgage arrears and lending to related parties. Consumer legislation The provision of credit to consumers is regulated in Ireland by the Consumer Credit Regulations and the Consumer Credit Act 1995 (the 1995 Act). The Consumer
Credit Regulations and the 1995 Act are relevant to the Group to the extent that any of its Group companies provide credit to consumers. The 1995 Act is also relevant to the Group to the extent that any of its Group companies provide credit in the
form of housing loans. The Consumer Credit Regulations, which transpose into Irish law the provisions of the Consumer Credit Directive (Directive 2008/48/EC), prescribe a range of detailed requirements to be included in pre-contractual information
and consumer credit agreements to be provided to consumers and impose a number of obligations on the provider of such credit. Where the provision of a particular type of credit does not fall within the scope of the Consumer Credit Regulations, it
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Act. The 1995 Act prescribes a range of detailed requirements to be included in consumer credit agreements to be provided to consumers and imposes a number of obligations on the provider of such
credit. The 1995 Act also imposes a requirement on all credit institutions to notify the Central Bank in advance of imposing on a customer any new charge in relation to the provision of certain specified services; increasing any charge previously
notified; or imposing any charge that does not comply with a direction from the Central Bank. Irish law contains a wide range of consumer protection provisions, such as the European Communities (Unfair Terms in Consumer Contracts) Regulations 1995,
the Consumer Protection Act 2007 and other measures regulating the content of face-to-face and distance marketing contracts made with a consumer. Deposit
protection and investor compensation Under the European Communities (Deposit Guarantee Schemes) Regulations 1995 (as amended) which implement in Ireland the
Deposit Guarantee Schemes Directive (Directive 94/19/EC), the Central Bank operates a deposit protection scheme under which each licensed bank must contribute to the deposit protection account held by the Central Bank. Currently, the level of
contribution required is 0.2 per cent of deposits (in whatever currency) held at all branches of the licensed bank in the EEA, including deposits on current accounts but excluding certain funds and commitments such as interbank deposits,
negotiable certificates of deposit, debt securities issued by the same institution and promissory notes. The maximum amount of deposit protected is 
100,000 per depositor per institution. See note 63(g) Related party transactions - Summary of relationship with the Irish Government in respect of the limited-duration State guarantee of many deposits in certain Irish credit
institutions, including Allied Irish Banks, p.l.c. and some of its subsidiaries. The Investor Compensation Act 1998 (the 1998 Act) provided for the establishment of the Investor Compensation Company Limited (the ICCL) to
administer and supervise an investor compensation scheme. The 1998 Act requires authorised investment firms to pay the ICCL such contribution to the fund maintained by the ICCL as the ICCL may from time to time specify. The maximum amount payable
under the investor compensation scheme is 90% of the amount lost by an eligible investor subject to a maximum compensation payment of  20,000. Anti-money laundering The Third EU Anti-Money Laundering Directive
(2005/60/EC) was transposed into Irish Law by the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010 (the 2010 Act) Persons designated under the 2010 Act (including credit institutions, financial institutions,
investment firms, IIA firms and life assurance companies) are obliged to take the necessary measures to effectively counteract money laundering and terrorist financing in accordance with the provisions of the 2010 Act. Core guidelines have been
published by the Department of Finance. The Guidelines have not been approved under section 107 of 2010 Act which is a matter for the Department of Justice and Equality and the Department of Finance. The 2010 Act introduced, inter alia, an obligation on designated persons to (i) apply customer due diligence procedures to their customers; (ii) identify and
take risk based and adequate measures to verify beneficial ownership; and (iii) identify and apply enhanced customer due diligence requirements to non-resident politically exposed persons. The 2010 Act amended reporting requirements where a
suspicious transaction report is necessitated. The 2010 Act also introduced a requirement for the authorisation of trust or company service providers. Analogously, Ireland, by means including the Criminal Justice (Terrorist Offences) Act 2005,
applies EU and United Nations mandated restrictions on financial transfers with designated individuals and regimes and imposes criminal penalties for participating in the financing of terrorism. Data Protection The main laws dealing with data protection are the Data
Protection Acts 1988 and Data Protection (Amendment) Act 2003 (DPAs). These DPAs regulate the processing, disclosure and use of data relating to individual customers. They also require that certain categories of data controllers
and data processors, including financial institutions and insurance companies which process personal data, are required to register with the Irish Data Protection Commissioner. The European Communities (Electronic Communications Networks and
Services) (Data Protection and Privacy) Regulations 2003 (as amended) transpose the EU Electronic Privacy Directive (2002/58/EC) into law and regulate marketing by electronic and other means. The ePrivacy Regulations 2011 (S.I. 336) deal with
data protection for phone, email, SME and internet use. A Personal Data Security Breach Code of Practice issued by the Irish Data Protection Commissioner sets out the requirements relating to the reporting of data security breaches and addresses
situations where personal data has been put at risk of unauthorised disclosure, loss, destruction or alteration. Each relevant Group company has implemented and monitors appropriate policies and procedures to ensure compliance with its obligations
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4.3 United Kingdom Regulation of AIB Group (UK) p.l.c. AIB Group (UK) p.l.c. is a company
incorporated in Northern Ireland and is authorised by the Financial Services Authority (FSA) under the Financial Services and Markets Act 2000 (FSMA) to carry on a wide range of regulated activities (including accepting
deposits, advising on investments (except pension transfers and pension opt outs), arranging deals in investments (including regulated mortgage contracts) and dealing in investments (as both agent and principal), for both professional and retail
clients in the United Kingdom. It carries on business under the trading names Allied Irish Bank (GB), Allied Irish Bank (GB) Savings Direct and First Trust Bank in Great Britain and Northern Ireland, respectively. The FSMA is the principal piece of legislation governing the establishment, supervision and regulation of financial services and markets in the United Kingdom. The
FSA is currently the single regulator for almost the full range of financial business in the United Kingdom; the exception being Consumer Credit which is currently regulated by the Office of Fair trading (the OFT). It is expected that
the OFT will transfer responsibility for regulating Consumer Credit to the Financial Conduct Authority in April 2014. The FSA derives its powers under the FSMA as amended. The FSA is responsible both for the prudential supervision and for the
general supervision of AIB Group (UK) p.l.c.s business in the United Kingdom. AIB Group (UK) p.l.c. must comply with the FSAs prudential rules including rules relating to capital adequacy, limits on large exposures and liquidity; and the
FSAs non-prudential rules including rules relating to conduct of business, market conduct (including market abuse), money laundering and systems and controls. The FSA Handbook contains the rules and guidance issued by the FSA. The Financial Services Bill has received royal assent and will come into force on 1 April 2013. This will give effect to a new regulatory structure. Under this new
structure, the Financial Policy Committee (FPC) within the Bank of England will be responsible for financial stability and macro prudential regulation. The Prudential Regulation Authority (PRA) will be a subsidiary of the
Bank of England, supervising the prudential compliance of deposit takers, insurers and a small number of significant investment firms. A new body, the Financial Conduct Authority (FCA) will be responsible for regulating conduct of
business in wholesale and retail markets. AIB Group (UK) p.l.c. has the statutory power to issue bank notes as local currency in Northern Ireland (it does this
under the name First Trust Bank). In this connection, it is subject to the provisions of the Bank Charter Act 1844, the Bankers (Northern Ireland) Acts 1845 and 1928, the Currency and Bank Notes Act 1928, the Allied Irish Banks Act 1981,
the Allied Irish Banks Act 1993 and the Allied Irish Banks Act 1996. AIB Group (UK) p.l.c. subscribes to the Lending Code of the Lending Standards Board which is a
self-regulatory code setting minimum standards of good practice in relation to lending, including loans, credit cards and current account overdrafts. The Lending Standards Board is the successor organisation to the Banking Code Standards Board and
the Lending Code replaced the previous Banking Codes issued by the Banking Code Standards Board following the transfer of responsibilities for the conduct of business regulation for deposit taking and payment products to the FSA on 1 November
2009. As of 1 November 2009, the FSA has introduced the Banking Conduct Regime which sets out the regulatory framework of retail banking services in relation to the regulated activity of payment services and accepting deposits from banking
customers and activities connected with it. AIB Group (UK) p.l.c. is subject to the Banking Conduct Regime. First Trust Independent Financial Advisers Ltd (a
company incorporated in Northern Ireland) is authorised by the FSA to advise on and arrange certain investments, including pensions, life policies, securities and non-investment insurance contracts. As in the case of AIB Group (UK) p.l.c., the FSA
is responsible both for the prudential supervision and for the general supervision of First Trust Independent Financial Advisers Ltds business in the United Kingdom. On 30 December 2012, First Trust Independent Financial Advisers Ltd.
ceased providing financial advice. The company name has changed to First Trust Financial Services Ltd. First Trust Bank has entered into an arrangement with Legal and General whereby financial advice will be provided to the banks customers
under an appointed representative arrangement. Regulation of AIB Allied Irish Banks, p.l.c. is incorporated and has its head office in Ireland, and is licensed as a credit institution in Ireland by the Central Bank of Ireland. Pursuant
to the Banking Consolidation Directive (Directive 2006/48/EC (the BCD)), Allied Irish Banks, p.l.c. has exercised its EU passport rights to provide banking, treasury and corporate treasury services in the United Kingdom on a
cross-border basis and through the establishment of branches (in the name of AIB). In accordance with the BCD, the Home State regulator (here, the
Central Bank of Ireland) has primary responsibility for the prudential supervision of credit institutions incorporated in Ireland. However, credit institutions exercising their passport rights must comply with certain requirements (in
particular, conduct of business rules) set by the Host State regulator (here, the FSA). In addition, the FSA has a responsibility to co-operate with the Central Bank of Ireland in ensuring that branches of Irish credit institutions in
the United Kingdom maintain adequate liquidity and take sufficient steps to cover risks arising from their open positions on financial markets in the United Kingdom.








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Regulation of other AIB Group entities Certain other AIB Group entities are authorised to carry on regulated activities by way of the right to provide cross-border services into the United Kingdom under the EU
passport; however, they carry on an insignificant amount of business in the United Kingdom at present. Market in Financial Instruments Directive
(MiFID) MiFID was implemented in the United Kingdom on 1 November 2007. The requirements of MiFID apply to all regulated AIB Group entities
in the European Union that carry out a MiFID investment service or activity, for example arranging deals in financial instruments, dealing as agent or principal in financial instruments, providing investment advice and conducting portfolio
management activities. MiFID is currently under review by the European Commission with the intention of implementing MiFID 2 by the end of 2014. Insurance
mediation Dealing as agent, arranging deals in, making arrangement with a view to transactions in, assisting in the administration and performance of,
advising on non-investment insurance contracts and agreeing to carry on any of these activities (Insurance Mediation Activities) are (subject to applicable exemptions) regulated activities under the FSMA. These Insurance Mediation
Activities have been implemented in the UK pursuant to the Insurance Mediation Directive (2002/92/EC). Each of AIB Group (UK) p.l.c. and First Trust Independent Financial Advisers Ltd is authorised by the FSA to carry on all Insurance Mediation
Activities. In July 2012, the European Commission published a proposal for a recast Insurance Mediation Directive which, if adopted, will enhance the regulation of insurance intermediaries in the EU. Mortgage regulation Entering into as lender, arranging, advising on and
administering regulated mortgage contracts, and agreeing to carry on any of these activities, are (subject to applicable exemptions) regulated activities under the FSMA. AIB Group (UK) p.l.c. is authorised by the FSA to enter into as lender, arrange
and administer (but not advise on) regulated mortgage contracts. Deposit protection and investor compensation The Financial Services Compensation Schemes (FSCS) is the UKs compensation fund of last resort for customers of authorised financial services firms and
protects claims in respect of deposits, insurance policies, insurance broking (for business on or after 14 January 2005), investment business and home finance (e.g. mortgage advising and arranging) (for business on or after 31 October
2004). FSCS may pay compensation, subject to its rules, if a firm is unable or likely to be unable to meet its financial obligations. However, there are limits to the protection available under the FSCS. The deposit compensation limit increased on
31 December 2010 to 100 per cent. of £85,000 per person, per firm. Eligible investment business and home finance mediation claimants against firms declared in default on or after 1 January 2010 are entitled to receive
100 per cent. compensation for financial loss up to £50,000 per person, per firm. Compensation under the FSCS in respect of claims against insurance mediation firms are calculated on the basis of (i) claims in respect of
liabilities subject to compulsory insurance, 100 per cent. of the claim and (ii) other insurance claims, 100 per cent. of the first £2,000 and 90 per cent. of the remainder of the claim against firms declared in default
before 1 January 2010 and the maximum level of compensation for claims against firms declared in default on or after 1 January 2010 is 90 per cent. of the claim with no upper limit. Both AIB Group (UK) p.l.c. and First Trust
Independent Financial Advisers Ltd are covered by the FSCS. Allied Irish Banks, p.l.c., as a bank operating in the United Kingdom under its EU passport, is not covered by the FSCS but, in accordance with the Deposit Guarantee Schemes Directive
(Directive 94/19/EC), is covered by its home state (Ireland) deposit protection scheme. See note 63(g) Related party transactions - Summary of relationship with the Irish Government. Consumer credit The Consumer Credit Act 1974, as amended
(CCA) regulates unsecured and certain secured consumer loan businesses, consumer hire and ancillary credit businesses such as credit brokerage and debt collecting. A credit agreement is regulated by the CCA where (a) the borrower is
or includes an individual as defined in the CCA; (b) if the agreement was made before the removal of the CCA financial limit, the amount of credit provided is £25,000 or less and (c) the credit agreement is not an exempt
agreement under the CCA (for example, it is a regulated mortgage contract (as defined by the Financial Services and Markets Act 2000 (Regulated Activities) Order 2001). At present, the Office of Fair Trading (OFT) is responsible for the
issue of licences under, and the superintendence of the working and the enforcement of, the CCA and other consumer protection legislation, although the Financial Services Act 2012 envisages the transfer of consumer credit regulation to the FCA in
April 2014. Both Allied Irish Banks, p.l.c. and AIB Group (UK) p.l.c. hold current CCA licences. The EU Consumer Credit Directive (2008/48/EC) was implemented into UK legislation via, inter alia, the Consumer Credit (EC Directive) Regulations
2010 (SI 2010/1010). The majority of the provisions came into force on 1 February 2011, with a small number having come into force on 30 April 2010. The
Unfair Terms in Consumer Contracts Regulations 1999 (the Unfair Terms Regulations) apply to certain contracts for goods and services entered into with consumers, including mortgages and related products and services. The main effect of
the Unfair Terms Regulations is that a non-negotiated contractual term covered by the Unfair Terms Regulations which is unfair will not be enforceable against a consumer. The Unfair Terms Regulations will not generally affect terms which
set out the subject matter of the contract, or concern the adequacy of price or remuneration for its goods and services sold, provided they are written in plain and intelligible language and are adequately drawn to the consumers attention.








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Anti-money laundering The
third EU Anti-Money Laundering Directive (2005/60/EC) adopted by the European Union in October 2005 was implemented in the UK on 15 December 2007 via the Money Laundering Regulations 2007. Practical assistance in the interpretation and
application of the UK Money Laundering Regulations is provided by the guidance published by the Joint Money Laundering Steering Group (JMLSG) which comprises several major trade bodies from within the financial services industry. The
Money Laundering Regulations 2007 provide detailed obligations for designated persons, which includes credit institutions, financial institutions, legal professionals and estate agents. For example, in relation to customer due diligence there is an
explicit requirement for firms to undertake ongoing monitoring of business relationships and for firms to identify not just their customer but also the ultimate beneficial owner of the customer(s) on a risk sensitive basis. Enhanced due diligence is
expected to be carried out where a customer poses a higher risk of money laundering or terrorist financing. In addition to the Money Laundering Regulations 2007, other acts of the UK Parliament such as the Proceeds of Crime Act 2002, Terrorism Act
2000 and the Counter-Terrorism Act 2008 are designed to combat money laundering/ counter terrorist financing in the UK. On 5 February 2013, the European Commission adopted a legislative proposal for a new Money Laundering Directive, which once
passed into law will replace the current Money Laundering Directive (2005/60/EC). Data protection The Data Protection Act 1998 (UKDPA) is the primary legislation regarding the collection, use and disclosure of personal data relating to individuals in the
United Kingdom. The UKDPA imposes a number of obligations on data controllers, including a requirement to notify the UK Information Commissioners Office that it is a data controller processing personal information in an
automated form and comply with eight data protection principles. Each relevant AIB Group company has implemented and monitored appropriate procedures to ensure compliance with its obligations under the UKDPA. Civil and criminal sanctions apply for
contraventions of the UKDPA. These include the issuance of monetary penalty notices to a maximum of £500,000 by the UK Information Commissioner for serious contraventions of the UKDPA. The UKDPA and the Privacy and Electronic Communications (EC Directive) Regulations 2003 are the main laws which regulate the use of personal data for marketing purposes
by electronic means and automated calling system in the United Kingdom. However, on 25 January 2012, the European Commission published a proposal for a new data protection regulation, which, if adopted, would provide the basis for a new EU wide
date protection regulatory framework. 4.4 United States Nature of the AIB Groups activities Notwithstanding the disposal of its
significant shareholding in M&T, AIB continues to be subject to federal and state banking and securities law supervision and regulation in the United States as a result of the banking activities conducted by its branch in New York and AIBs
ongoing SEC reporting obligations under the Exchange Act. Applicable federal and state banking laws and regulations Under the US International Banking Act of 1978, as amended (the IBA), AIB is a foreign banking organisation and is treated as a bank holding company, as such
terms are defined in the statute, and, as such, is subject to regulation by the Federal Reserve Board (FRB). As a bank holding company that has not elected to be a financial holding company, AIB is generally required to limit
its direct and indirect activities in the United States to banking activities and activities that the FRB has determined to be so closely related to banking as to be a proper incident thereto. AIB continues to conduct limited corporate lending, treasury and other operations through its New York branch. AIBs New York branch is supervised by the FRB and
the New York State Department of Financial Services. Under the IBA, the FRB may terminate the activities of any US branch or agency in certain specified circumstances. Also, under the New York Banking Law, the New York State Department of Financial
Services may take possession of the business and property of a New York state-licensed branch under circumstances generally including violations of law, unsafe or unsound practices or insolvency. Under US federal banking laws, state-licensed branches (such as AIBs New York branch) may not, as a general matter, engage as a principal in any type of activity
not permissible for their federally licensed counterparts, unless the FRB determines that the additional activity is consistent with sound banking practices. US federal and state banking laws also generally subject state branches to the same
single-borrower lending limits that apply to federal branches or agencies, which are substantially similar to the lending limits applicable to national banks. These single-borrower lending limits are based on the worldwide capital of the entire
foreign bank. Anti-money laundering, anti-terrorism and economic sanctions regulations have become a major focus of US government policy relating to financial
institutions and are rigorously enforced. Regulations applicable to AIB and its affiliates impose obligations to maintain appropriate policies, procedures and controls to detect, prevent and report money laundering. In particular, Title III of the
USA PATRIOT Act, as amended, requires financial institutions operating in the United States to (i) give special attention to correspondent and payable-through bank accounts, (ii) implement enhanced due diligence and know your
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correspondent banking relationships, (iii) scrutinise the beneficial ownership and activity of certain non-US and private banking customers (especially for so-called politically exposed
persons) and (iv) develop new anti-money laundering programmes, due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programmes are intended to supplement any existing
compliance programmes under the Bank Secrecy Act and Office of Foreign Assets Control (OFAC) regulations. OFAC administers and enforces economic and
trade sanctions against targeted foreign countries, terrorists and international narcotics traffickers to carry out US foreign policy and national security objectives. Generally, the regulations require blocking of accounts and other property of
specified countries, entities and individuals, and the prohibition of certain types of transactions (unless OFAC issues a licence) with specified countries, entities and individuals. Banks, including US branches of foreign banks, are expected to
establish and maintain appropriate OFAC compliance programmes to ensure compliance with OFAC regulations. Failure of a financial institution to maintain and
implement adequate programmes to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution. Applicable federal and state securities laws and regulations Although
AIB delisted its ordinary shares from the New York Stock Exchange in August 2011, it continues to be subject to regulation and supervision by the SEC. Like other registrants, AIB files reports and other information required under the Exchange Act
with the SEC, including Annual Reports on Form 20-F and Current Reports on Form 6-K. The Sarbanes-Oxley Act imposes significant requirements on AIB and other SEC registrants. These include requirements with respect to the composition of AIBs
Audit Committee, the supervision of AIBs auditors (and the services that may be provided by such auditors) and the need for personal certification by the chief executive officer and chief (principal) financial officer of Annual Reports on Form
20-F, as well as the financial statements included in such reports and related matters. Although subject to such requirements, the Exchange Act and related SEC
rules and regulations afford foreign private issuers, including AIB, relief from a number of requirements applicable to US registrants and, in certain respects, defers to the home country requirements of the company in question. AIBs Annual
Reports on Form 20-F include disclosure of executive compensation and other disclosures applicable to AIB under Irish law, but these disclosures are not fully comparable with disclosure requirements applicable to US registrants. In addition, the
SECs rules under the Sarbanes-Oxley Act are, in some respects, less burdensome on AIB and other foreign private issuers than they are on similarly situated US registrants. AIBs Annual Reports on Form 20-F also reflect compliance with the
internal control and auditor attestation requirements applicable to AIB by virtue of Section 404 of the Sarbanes-Oxley Act. Other more recent federal laws and
regulations, including the Dodd Frank Act of 2010, include provisions that have potentially significant limitations on non-US banks operating in the United States. However, given the recent changes in AIBs business and the disposal of its
M&T shareholding, they are of less direct relevance to AIB. 4.5 Other locations Smaller operations are undertaken in other locations that are also subject to the regulatory environment in those jurisdictions. In addition, discontinued operations are
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| |  |    |  |                                                                           
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| |  | 1  |  | Reporting entity                                                          
| |  | 2  |  | Statement of compliance                                                   
| |  | 3  |  | Basis of preparation                                                      
| |  | 4  |  | Basis of consolidation                                                    
| |  | 5  |  | Foreign currency translation                                              
| |  | 6  |  | Interest income and expense recognition                                   
| |  | 7  |  | Fee and commission income                                                 
| |  | 8  |  | Net trading income                                                        
| |  | 9  |  | Dividend income                                                           
| |  | 10 |  | Operating leases                                                          
| |  | 11 |  | Employee benefits                                                         
| |  | 12 |  | Non-credit risk provisions                                                
| |  | 13 |  | Income tax, including deferred income tax                                 
| |  | 14 |  | Impairment of property, plant and equipment,goodwill and intangible assets
| |  | 15 |  | Impairment of financial assets                                            
| |  | 16 |  | Determination of fair value of financial instruments                      
| |  | 17 |  | Valuation of NAMA senior bonds                                            
| |  | 18 |  | Financial assets                                                          
| |  | 19 |  | Financial liabilities                                                     
| |  | 20 |  | Property, plant and equipment                                             
| |  | 21 |  | Intangible assets                                                         
| |  | 22 |  | Derivatives and hedge accounting                                          
| |  | 23 |  | Non-current assets held for saleand discontinued operations               
| |  | 24 |  | Collateral and netting                                                    
| |  | 25 |  | Financial guarantees                                                      
| |  | 26 |  | Sale and repurchase agreements (includingstock borrowing and lending)     
| |  | 27 |  | Leases                                                                    
| |  | 28 |  | Shareholders equity                                                      
| |  | 29 |  | Insurance and investment contracts                                        
| |  | 30 |  | Segment reporting                                                         
| |  | 31 |  | Cash and cash equivalents                                                 
| |  | 32 |  | Prospective accounting changes                                            





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The significant accounting policies that the Group applied in the preparation of the financial statements are set out in
this section.  1
Reporting entity Allied Irish Banks, p.l.c. (the parent company or the Company) is a
company domiciled in Ireland. The address of the Companys registered office is Bankcentre, Ballsbridge, Dublin 4, Ireland. The consolidated financial statements include the financial statements of Allied Irish Banks, p.l.c. (the parent
company) and its subsidiary undertakings, collectively referred to as the Group, where appropriate, including certain special purpose entities and are made up to the end of the financial year. The Group is and has been primarily involved
in retail and corporate banking.  2
Statement of compliance The consolidated financial statements have been prepared in accordance with International
Accounting Standards and International Financial Reporting Standards (collectively IFRSs) as issued by the International Accounting Standards Board (IASB) and International Financial Reporting Standards as adopted by the
European Union (EU) and applicable for the year ended 31 December 2012. The accounting policies have been consistently applied by Group entities and are consistent with the previous year, unless otherwise described. The financial
statements also comply with the Companies Acts 1963 to 2012 and the European Communities (Credit Institutions: Accounts) Regulations, 1992 (as amended) and the Asset Covered Securities Acts 2001 and 2007. The company financial statements have been
prepared in accordance with International Financial Reporting Standards as issued by the IASB and International Financial Reporting Standards as adopted by the EU as applicable for the year ended 31 December 2012 and with Irish Statute. In
publishing the parent company financial statements together with the Group financial statements, AIB has taken advantage of the exemption in paragraph 2 of the European Communities (Credit Institutions: Accounts) Regulations, 1992 not to present its
parent company income statement, statement of comprehensive income and related notes that form part of these approved financial statements.  3
Basis of preparation Functional and presentation currency The financial statements are presented in euro, which is the functional currency of the parent company and a significant number of its subsidiaries, rounded to the
nearest million. Basis of measurement The financial statements have been
prepared under the historical cost basis, with the exception of the following assets and liabilities which are stated at their fair value: derivative financial instruments, financial instruments at fair value through profit or loss, certain hedged
financial assets and financial liabilities and financial assets classified as available-for-sale. The financial statements comprise the consolidated income
statement, the consolidated statement of comprehensive income, the consolidated and parent company statements of financial position, the consolidated and parent company statements of cash flows, and the consolidated and parent company statements of
movements in equity together with the related notes. These notes also include financial instrument related disclosures which are required by IFRS 7 and revised IAS 1, contained in the Financial review and the Risk management sections of this Annual
Financial Report. The relevant information on those pages is identified as forming an integral part of the audited financial statements. Use of estimates and
judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of policies and
reported amounts of certain assets, liabilities, revenues and expenses, and disclosures of contingent assets and liabilities. The estimates and assumptions are based on historical experience and various other factors that are believed to be
reasonable under the circumstances. Since managements judgement involves making estimates concerning the likelihood of future events, the actual results could differ from those estimates. Revisions to accounting estimates are recognised in the
period in which the estimate is revised and in any future period affected. The estimates that have a significant effect on the financial statements and estimates with a significant risk of material adjustment in the next year are in the areas of
loan impairment and impairment of other financial instruments; the recoverability of deferred tax; determination of the fair value of certain financial assets and financial liabilities; and retirement benefit obligations. In addition, the
designation of financial assets and financial liabilities has a significant impact on their income statement treatment and could have a significant impact on reported income. A description of these estimates and judgements is set out within Financial review - Critical accounting policies and estimates. This section is identified as forming an
integral part of the audited financial statements. Arising from the results of the Prudential Capital Assessment Review (PCAR)/Prudential Liquidity
Assessment Review (PLAR) in March 2011, AIB is required to dispose of non-core financial assets. Accordingly, certain of these financial assets are classified as held for sale at 31 December 2012. These assets do not constitute a
major line of business or a geographical area of operations, but are included within Disposal groups and non-current assets held for sale (note 25).








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3 Basis of preparation(continued) Going concern The financial statements for the year ended 31 December 2012
have been prepared on a going concern basis as the Directors are satisfied, having considered the risks and uncertainties impacting the Group, that it has the ability to continue in business for the period of assessment. The period of assessment
used by the Directors is twelve months from the date of approval of these annual financial statements. In making its assessment, the Directors have considered a
wide range of information relating to present and future conditions. These have included financial plans, cash flow and funding forecasts, capital resources projections, all of which have been prepared under base and stress scenarios. In addition,
the Directors have considered the commitment of support provided to AIB by the Irish Government, through the programme for restructuring the Irish banking system, with AIB designated as one of the two Pillar Banks. Furthermore, the
Directors have considered the outlook for the Irish economy, taking into account such factors as progress on improving the fiscal situation and the support provided by the EU/IMF to Ireland and the fact that the economy returned to a modest growth
path in 2011-2012. The Directors also considered the eurozone sovereign debt crisis taking into account the developments taken at an EU level that lead to a marked easing of the crisis and improvement of conditions in eurozone financial markets
during the second half of 2012. Background The deterioration in
the Irish economy in the period 2008-2010 culminated in the EU/IMF Programme of Financial Support for Ireland at the end of 2010. The EU/IMF Programme provided for the restructuring and reorganisation of the Irish banks. The subsequent Financial
Measures Programme published by the Central Bank of Ireland (the Central Bank) in March 2011 set a PCAR requirement for AIB (including EBS Limited (EBS)) to raise capital amounting to
 14.8 billion, which was met by July 2011. Since then, there has been
a modest rise in Irish GDP, however, it is all accounted for by exports as domestic demand has continued to contract. Overall, the economic backdrop remains challenging and growth is expected to pick up only modestly in the next two years. This will
continue to present significant risks and challenges for the Group in the years ahead. Since 2010, AIB has had limited access to wholesale funding and has been
dependent on secured funding from the European Central Bank (ECB). Market volatility remained elevated and liquidity depressed during 2012 driven by the deterioration in global credit markets as sovereign difficulties in the eurozone
grew and the overall global macroeconomic environment remained uncertain. At different stages since the beginning of 2011, European countries and leaders reaffirmed
their commitment to the euro, culminating in July 2012, when the ECB President pledged that the ECB would do whatever is necessary to protect the eurozone. The ECB followed this statement by announcing that it was willing to implement a new
unlimited bond buying programme in the secondary market to support under pressure sovereign bond markets in the euro area. This announcement led to a sharp fall in yields in peripheral eurozone debt markets and a marked easing of
tensions in the eurozone financial system. The various support measures adopted for the euro since the beginning of 2011 and the pronouncements of the ECB
demonstrate the strong commitment of EU institutions and the euro area Member States to do whatever is necessary to preserve the euro. Capital In March 2011, following the Financial Measures Programme (FMP), the Central Bank announced new minimum capital target ratios for AIB of 10.5% core tier 1
capital, in a base scenario and 6% core tier 1 capital in a stressed scenario. These target ratios form the basis of the Groups capital management policy and are the capital adequacy requirements effective as at 31 December 2012. The
Groups core tier 1 ratio at 31 December 2012 is 15.1% (2011: 17.9%). The Groups total capital ratio at 31 December 2012 is 17.6% (2011: 20.5%). In October 2012, AIB published the results of the final assessment of the December 2011 capital exercise co-ordinated by the European Banking Authority (EBA)
under the supervision of the Central Bank. The published results confirmed that as at June 2012, AIB met the 9% core tier 1 ratio including the sovereign buffer as stated in the EBA December 2011 recommendation. The Irish Government, as AIBs principal shareholder, has confirmed its recognition of AIB as a Pillar Bank, given its key role in supporting the Irish
economy. In support of this role, it has ensured that AIB has been sufficiently capitalised to meet the capital targets set by the Central Bank through its 2011 PCAR and PLAR assessment. AIB are awaiting the authorities finalisation of the Capital Requirements Directive IV (CRD IV) requirements which will impact on the Groups
regulatory capital measurement and regulatory capital ratios. Sign off by the European Parliament is expected in April 2013, however, the Directors believe that the impact on the Groups capital position from the phased implementation during
the period of assessment will be managed within the Groups existing capital resources. The Directors have reviewed the capital and financial plans for the
period of assessment, and although AIB consumes capital over the life of the plan they believe that the capital resources are sufficient to ensure that the Group is adequately capitalised both in a base and stress scenario.








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3
Basis of preparation(continued) Liquidity and funding Customer deposits at 55% (up from 47% at 31 December 2011) are the single most important element of the Groups funding mix. Customer deposit accounts increased
by  5 billion in the full year 2012, or net  3 billion including the run-off of Offshore deposits of  2 billion following the announcement of the closure of that business. Growth was experienced across all business areas during this period, as sentiment towards Ireland and Irish banks improved. During 2012,
AIB UK (AIB (GB) and FTB) withdrew from the Eligible Liabilities Guarantee (ELG) scheme. The Group welcomed the announcement of the Minister for Finance on 26 February 2013 that the ELG scheme would be withdrawn for new liabilities
with effect from midnight on the 28 March 2013 and is prepared for its withdrawal. Wholesale funding markets continued to be challenging in 2012, however, it
was a year having a contrasting second half compared to the first half. Irish sovereign bonds performed very strongly in the second half of 2012 enabling a successful return to the term funding markets for the National Treasury Management Agency
(NTMA). This has continued into 2013 with further term issuance by the NTMA and the successful resumption of short term treasury bill auctions. In the
first half of 2012, AIB successfully issued a secured funding transaction backed by UK residential mortgage assets. Given the significant improvement in sentiment towards Ireland in the second half of 2012 it enabled the Groups issue of a
covered bond from its Irish mortgage pool in November 2012. AIB also issued a second covered bond in January 2013. The key factors influencing the Groups
capacity for asset growth and its future shape will be: 

The performance of the economy; 

Retention and gathering of stable customer deposits in a challenging and increasingly competitive market environment; 

Gaining access to unsecured wholesale term markets; and 

Action to deleverage non-core assets. The above are paramount to increasing the Groups pool of available liquid
assets and to the Groups overall funding/liquidity strategy. The Group continues to reduce its dependence on Central Bank/ECB support. Central Bank/ECB
support amounted to  22 billion at 31 December 2012, down from  31 billion at 31 December 2011. This
was due to asset deleveraging, loan amortisation and continued weak demand for credit, the redemption of NAMA senior bonds and increased deposits, partially offset by maturing secured and unsecured bonds (Covered Bonds and Medium Term Notes
(MTN) respectively). In addition, AIB ceased issuance of its Own Use Bank Bonds (i.e. self-issued MTN under the Government guarantee) in the first half of 2012. Notwithstanding the 2012 improvements, it is expected that the Group will continue to require access to funding from the monetary authorities during the period of
assessment. However, AIBs continued access to Central Bank funding support as required is considered to be assured due to its position as one of the two Pillar Banks. The Directors are satisfied based on AIBs position as one of the two Pillar Banks that in all reasonable circumstances, the required liquidity and
funding from the Central Bank/ECB will be available to the Group during the period of assessment. The Directors, therefore, consider that the liquidity and funding
position of AIB is assured during the period of assessment. Conclusion On the basis of the above, the Directors believe that it is appropriate to prepare the financial statements on a going concern basis having concluded that there are no
material uncertainties related to events or conditions that may cast significant doubt on the Groups ability to continue as a going concern over the period of assessment. Adoption of new accounting standards The following amendments to standards
have been adopted by the Group and the Company during the year ended 31 December 2012. These amendments have not had a material impact on these financial statements. Disclosures - Transfers of Financial Assets(Amendments to IFRS 7) This amendment to IFRS 7 requires certain disclosures in respect of all transferred financial assets that are not derecognised in their entirety and transferred assets
that are derecognised in their entirety but with which there is continuing involvement including the possible effects of any risks that may remain with the transferor of the assets. These disclosures are being made in the Groups financial
statements for the year ended 31 December 2012 in note 55 and for the parent company, Allied Irish Banks, p.l.c., in note ab as the standard requires that all disclosures on transferred assets be shown in one note. Other amendments resulting from Improvements to IFRSs which the Group adopted in 2012 did not have any impact on the accounting policies, financial position or
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4
Basis of consolidation Subsidiary undertakings A subsidiary undertaking is one where the Group has the power, directly or indirectly, to govern the financial and operating policies of the entity, so as to obtain
benefits from its activities. The existence and effect of potential voting rights that are currently exercisable or convertible are considered in assessing whether the Group controls the entity. Subsidiaries are consolidated from the date on which
control is transferred to the Group until the date that control ceases. A special purpose entity is an entity created to accomplish a narrow and well-defined
objective such as the securitisation of particular assets or the execution of a specific borrowing or lending transaction. The financial statements of special purpose entities are included in the Groups consolidated financial statements where
the substance of the relationship is that the Group controls the special purpose entity. The Group accounts for the acquisition of businesses using the acquisition
method except for those businesses under common control. Under the acquisition method, the consideration transferred in a business combination is measured at fair value, which is calculated as the sum of the acquisition date fair value of assets
transferred by the Group, liabilities incurred by the Group to the former owners of the acquiree, and the equity interests issued by the Group in exchange for control of the acquiree. Acquisition related costs are generally recognised in the income
statement as incurred. Goodwill is measured as the excess of the sum of the fair value of the consideration transferred, the amount of any non-controlling interests in the acquiree, and the fair value of the acquirers previously held equity
interest in the acquiree, if any, over the net of the acquisition date fair value of the identifiable assets acquired and liabilities assumed. The Group commonly
acts as trustee and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, trusts, retirement benefit plans and other institutions. These assets, and income arising thereon, are excluded from the
financial statements, as they are not assets of the Group. Common control transactions The Group accounts for the acquisition of businesses or investments in subsidiary undertakings between members of the Group at carrying value at the date of the
transaction unless prohibited by company law or IFRS. This policy also applies to the acquisition of businesses by the Group of other entities under the common control of the Irish Government. Where the carrying value of the acquired net assets
exceed the fair value of the consideration paid, the excess is accounted for as a capital contribution (accounting policy number 28). On impairment of the subsidiary in the parent companys separate financial statements, an amount equal to the
impairment charge net of tax in the income statement is transferred from capital contribution reserves to revenue reserves. The entire capital contribution is transferred to revenue reserves on final sale of the subsidiary (see accounting policy
number 28 Shareholders equity - capital contributions). For acquisitions under common control, comparative data is not restated. The consolidation of
the acquired entity is effective from the acquisition date with intercompany balances eliminated at a Group level on this date. Associated undertakings An associated undertaking is generally one in which the Groups interest is greater than 20% and less than 50% and in which the Group has significant influence, but
not control, over the entitys operating and financial policies. Investments in associated undertakings are initially recorded at cost and increased (or
decreased) each year by the Groups share of the post acquisition net income (or loss), and other movements reflected directly in other comprehensive income of the associated undertaking. Goodwill arising on the acquisition of an associated undertaking is included in the carrying amount of the investment. When the Groups share of losses in an
associate has reduced the carrying amount to zero, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations to make payments on behalf of the associate. Where the Group continues to hold more than 20% of the interests in an investment but ceases to have significant influence, the investment is no longer accounted for as
an associate. On the loss of significant influence, the Group measures the investment at fair value and recognises any difference between the carrying value and fair value in profit or loss and accounts for the investment in accordance with IAS 39
Financial Instruments: Recognition and Measurement.








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4
Basis of consolidation(continued) The Groups share of the results of associated
undertakings after tax reflects the Groups proportionate interest in the associated undertaking and is based on financial statements made up to a date not earlier than three months before the period end reporting date, adjusted to conform with
the accounting policies of the Group. Since goodwill that forms part of the carrying amount of the investment in an associate is not recognised separately, it is
therefore not tested for impairment separately. Instead, the entire amount of the investment in an associate is tested for impairment as a single asset when there is objective evidence that the investment in an associate may be impaired. Transactions eliminated on consolidation Intra-group balances and any
unrealised income and expenses, arising from intra-group transactions are eliminated on consolidation. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Unrealised
gains and losses on transactions with associated undertakings are eliminated to the extent of the Groups interest in the investees. 5 Foreign currency
translation Items included in the financial statements of each of the Groups entities are measured using their functional currency, being the currency of
the primary economic environment in which the entity operates. Transactions and balances Foreign currency transactions are translated into the respective entitys functional currency using the exchange rates prevailing at the dates of the transactions.
Monetary assets and liabilities denominated in foreign currencies are re-translated at the rate prevailing at the period end. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-translation at period
end exchange rates of the amortised cost of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Exchange differences on equities and similar non-monetary items held at fair value through profit
or loss are reported as part of the fair value gain or loss. Exchange differences on equities classified as available for sale financial assets, together with exchange differences on a financial liability designated as a hedge of the net investment
in a foreign operation are reported in other comprehensive income. Foreign operations The results and financial position of all Group entities that have a functional currency different from the euro are translated into euro as follows: 

assets and liabilities including goodwill and fair value adjustments arising on consolidation of foreign operations are translated at the closing rate; 

income and expenses are translated into euro at the average rates of exchange during the period where these rates approximate to the foreign exchange rates ruling at the dates of the transactions; 

foreign currency translation differences are recognised in other comprehensive income; and 

since 1 January 2004, the Groups date of transition to IFRS, all such exchange differences are included in the foreign currency translation reserve within shareholders equity. When a foreign operation
is disposed of in full, the relevant amount of the foreign currency translation reserve is transferred to the income statement. When a subsidiary is partly disposed of, the foreign currency translation reserve is re-attributed to the non-controlling
interest. 6 Interest income and expense recognition Interest income and expense is recognised in the income statement for all interest-bearing financial instruments using the effective interest method. The effective interest method is a method of calculating the amortised cost of a financial asset or financial liability (or group of financial assets or financial
liabilities) and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts the estimated future cash payments or receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset or financial liability. The application of the method has the effect of recognising income receivable and expense payable on the instrument evenly in proportion to the amount outstanding
over the period to maturity or repayment. In calculating the effective interest rate, the Group estimates cash flows (using projections based on its experience of
customers behaviour) considering all contractual terms of the financial instrument but excluding future credit losses. The calculation takes into account all fees, including those for any expected early redemption, and points paid or received
between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums and discounts.








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6 Interest income and expense recognition(continued) All costs associated with mortgage incentive schemes are included in the effective interest rate calculation. Fees and commissions payable to third parties in connection
with lending arrangements, where these are direct and incremental costs related to the issue of a financial instrument, are included in interest income as part of the effective interest rate. Interest income and expense presented in the consolidated income statement includes:- -

Interest on financial assets and financial liabilities at amortised cost on an effective interest method; -

Interest on financial investments available for sale on an effective interest method; -

Net interest income and expense on qualifying hedge derivatives designated as cash flow hedges or fair value hedges which are recognised in interest income or interest expense; and -

Interest income and funding costs of trading portfolio financial assets, excluding dividends on equity shares. 7 Fee
and commission income Fees and commissions are generally recognised on an accruals basis when the service has been provided, unless they have been included in
the effective interest rate calculation. Loan syndication fees are recognised as revenue when the syndication has been completed and the Group has retained no part of the loan package for itself or retained a part at the same effective interest rate
as applicable to the other participants. Portfolio and other management advisory and service fees are recognised based on the applicable service contracts. Asset
management fees relating to investment funds are recognised over the period the service is provided. The same principle is applied to the recognition of income from wealth management, financial planning and custody services that are continuously
provided over an extended period of time. Commitment fees, together with related direct costs, for loan facilities where drawdown is probable are deferred and
recognised as an adjustment to the effective interest rate on the loan once drawn. Commitment fees in relation to facilities where drawdown is not probable are recognised over the term of the commitment on a straight line basis. Other credit related
fees are recognised as the service is provided except for arrangement fees where it is likely that the facility will be drawn down and which are included in the effective interest rate calculation. 8 Net trading income Net trading income comprises gains less losses relating
to trading assets and trading liabilities and includes all realised and unrealised fair value changes. 9 Dividend income Dividend income is recognised when the right to receive dividend income is established. Usually this is the ex-dividend date for equity securities. 10 Operating leases Payments made under operating leases are recognised in
the income statement on a straight line basis over the term of the lease. Lease incentives received and premiums paid at inception of the lease are recognised as an integral part of the total lease expense over the term of the lease. 11 Employee benefits Retirement benefit obligations The Group provides employees with post retirement benefits mainly in the form of pensions. The Group provides a number of retirement benefit schemes including defined benefit and defined contribution as well as a hybrid scheme that has both defined benefit and
defined contribution elements. In addition, the Group contributes, according to local law in the various countries in which it operates, to Governmental and other schemes which have the characteristics of defined contribution schemes. The majority
of the defined benefit schemes are funded. Full actuarial valuations of defined benefit schemes are undertaken every three years and are updated to reflect current
conditions at each year-end reporting date. Scheme assets are measured at fair value determined by using current bid prices. Scheme liabilities are measured on an actuarial basis by estimating the amount of future benefit that employees have earned
for their service in current and prior periods and discounting that benefit at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability. The calculation is performed by a qualified actuary using
the projected unit credit method. The difference between the fair value of the scheme assets and the present value of the defined benefit obligation at the year-end reporting date is








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11 Employee benefits(continued)

Retirement benefit obligations






recognised in the statement of financial position. Schemes in surplus are shown as assets and schemes in deficit, together with unfunded schemes, are shown as liabilities. Actuarial gains and
losses are recognised immediately in other comprehensive income. Changes with regard to benefits payable to retirees which represent a constructive obligation under
IAS 37 Provisions, Contingent Liabilities and Contingent Assets, are accounted for as a negative past service cost. These are recognised in the income statement. The cost of providing defined benefit pension schemes to employees, comprising the current service cost, past service cost, curtailments, the expected return on scheme
assets, and the change in the present value of scheme liabilities arising from the passage of time is charged to the income statement within personnel expenses. The
cost of the Groups defined contribution schemes, is charged to the income statement in the accounting period in which it is incurred. Any contributions unpaid at the year-end reporting date are included as a liability. The Group has no further
obligation under these schemes once these contributions have been paid. Short-term employee benefits Short-term employee benefits, such as salaries and other benefits, are accounted for on an accruals basis over the period during which employees have provided services.
Bonuses are recognised to the extent that the Group has a legal or constructive obligation to its employees that can be measured reliably. The cost of providing subsidised staff loans and preferential rates on staff deposits is charged within
personnel expenses. Termination benefits Termination benefits are
recognised as an expense when the Group is demonstrably committed, without the realistic possibility of withdrawal, to a formal plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are
recognised if the Group has made an offer seeking applications for voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. 12 Non-credit risk provisions Provisions are recognised for present legal or
constructive obligations arising as consequences of past events where it is probable that a transfer of economic benefit will be necessary to settle the obligation, and it can be reliably estimated. When the effect is material, provisions are determined by discounting expected future cash flows at a pre-tax rate that reflects current market assessments of the time
value of money and, where appropriate, the risks specific to the liability. Payments are deducted from the present value of the provision, and interest at the relevant discount rate, is charged annually to interest expense using the effective
interest method. Changes in the present value of the liability as a result of movements in interest rates are included in other financial income. The present value of provisions is included in other liabilities. When a leasehold property ceases to be used in the business, provision is made, where the unavoidable costs of future obligations relating to the lease are expected to
exceed anticipated income. The provision is calculated using market rates of interest to reflect the long-term nature of the cash flows. Before the provision is established, the Group recognises any impairment loss on the assets associated with the
lease contract. Restructuring costs Where the Group has a formal plan for
restructuring a business and has raised valid expectations in the areas affected by the restructuring by starting to implement the plan or announcing its main features, provision is made for the anticipated cost of restructuring, including
retirement benefits and redundancy costs, when an obligation exists. The provision raised is normally utilised within twelve months. Future operating costs are not provided for. Legal claims and other contingencies Provisions are made for legal claims
where the Group has present legal or constructive obligations as a result of past events and it is more likely than not that an outflow of resources will be required to settle the obligation and the amount can be reliably estimated. Contingent liabilities are possible obligations whose existence will be confirmed only by the occurrence of uncertain future events or present obligations where the
transfer of economic benefit is uncertain or cannot be reliably estimated. Contingent liabilities are not recognised but are disclosed in the notes to the financial statements unless the possibility of the transfer of economic benefit is remote. A provision is recognised for a constructive obligation where a past event has led to an obligating event. This obligating event has left the Group with little
realistic alternative but to settle the obligation and the Group has created a valid expectation in other parties that it will discharge the obligation.








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13 Income tax, including deferred income tax Income tax comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised in other
comprehensive income, in which case it is recognised in other comprehensive income. Income tax relating to items in equity is recognised directly in equity. Current
tax is the expected tax payable on the taxable income for the year using tax rates enacted or substantively enacted at the reporting date and any adjustment to tax payable in respect of previous years. Deferred income tax is provided, using the financial statement liability method, on temporary differences between the tax bases of assets and liabilities and their
carrying amounts for financial reporting purposes. Deferred income tax is determined using tax rates based on legislation enacted or substantively enacted at the reporting date and expected to apply when the deferred tax asset is realised or the
deferred tax liability is settled. Deferred income tax assets are recognised when it is probable that future taxable profits will be available against which the temporary differences will be utilised. The tax effects of income tax losses available for carry forward are recognised as an asset when it is probable that future taxable profits will be available against
which these losses can be utilised. Deferred and current tax assets and liabilities are only offset when they arise in the same tax reporting group and where there
is both the legal right and the intention to settle the current tax assets and liabilities on a net basis or to realise the asset and settle the liability simultaneously. The principal temporary differences arise from depreciation of property, plant and equipment, revaluation of certain financial assets and financial liabilities including
derivative contracts, provisions for pensions and other post retirement benefits, and in relation to acquisitions, on the difference between the fair values of the net assets acquired and their tax base. Deferred income tax is provided on temporary differences arising from investments in subsidiaries and associates, except where the timing of the reversal of the
temporary difference is controlled by the Group and it is probable that the difference will not reverse in the foreseeable future. In addition, the following temporary differences are not provided for: goodwill, the amortisation of which is not
deductible for tax purposes, and assets and liabilities the initial recognition of which, in a transaction that is not a business combination, affects neither accounting nor taxable profit. Income tax payable on profits, based on the applicable tax
law in each jurisdiction, is recognised as an expense in the period in which the profits arise. 14 Impairment of property, plant and equipment, goodwill and
intangible assets Annually, or more frequently where events or changes in circumstances dictate, property, plant and equipment and intangible assets are assessed
for indications of impairment. If indications are present, these assets are subject to an impairment review. Goodwill and intangible assets not yet available for use are subject to an annual impairment review. The impairment review comprises a comparison of the carrying amount of the asset or cash generating unit with its recoverable amount. Cash-generating units are the
lowest level at which management monitors the return on investment in assets. The recoverable amount is determined as the higher of fair value less costs to sell of the asset or cash generating unit and its value in use. Fair value less costs to
sell is calculated by reference to the amount at which the asset could be disposed of in an arms length transaction evidenced by an active market or recent transactions for similar assets. Value in use is calculated by discounting the expected
future cash flows obtainable as a result of the assets continued use, including those resulting from its ultimate disposal, at a market-based discount rate on a pre-tax basis. For intangible assets not yet available for use, the impairment
review takes into account the cash flows required to bring the asset into use. The carrying values of property, plant and equipment and intangible assets are
written down by the amount of any impairment and this loss is recognised in the income statement in the period in which it occurs. A previously recognised impairment loss may be reversed in part or in full when there is an indication that the
impairment loss may no longer exist and there has been a change in the estimates used to determine the assets recoverable amount. The carrying amount of the asset will only be increased up to the amount that it would have been had the original
impairment not been recognised. Impairment losses on goodwill are not reversed.








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15 Impairment of financial assets It is Group policy to make provisions for impairment of financial assets to reflect the losses inherent in those assets at the reporting date. Impairment The Group assesses at each reporting date whether there is
objective evidence that a financial asset or a portfolio of financial assets is impaired. A financial asset or portfolio of financial assets is impaired and impairment losses are incurred if, and only if, there is objective evidence of impairment as
a result of one or more loss events that occurred after the initial recognition of the asset and on or before the reporting date (a loss event), and that loss event or events has had an impact such that the estimated present value of
future cash flows is less than the current carrying value of the financial asset, or portfolio of financial assets. Objective evidence that a financial asset or a
portfolio of financial assets is impaired includes observable data that comes to the attention of the Group about the following loss events: a)
significant financial difficulty of the issuer or obligor; b)
a breach of contract, such as a default or delinquency in interest or principal payments; c)
the granting to the borrower of a concession, for economic or legal reasons relating to the borrowers financial difficulty that the Group would not otherwise consider; d)
it becomes probable that the borrower will enter bankruptcy or other financial reorganisation; e)
the disappearance of an active market for that financial asset because of financial difficulties; or f)
observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be
identified with the individual financial assets in the portfolio, including: i
adverse changes in the payment status of borrowers in the portfolio; and ii
national or local economic conditions that correlate with defaults on the assets in the portfolio. Incurred but not
reported The Group first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and
individually or collectively for financial assets that are not individually significant (i.e. individually insignificant). If the Group determines that no objective evidence of impairment exists for an individually assessed financial asset, whether
significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and includes these performing assets under the collective incurred but not reported (IBNR) assessment. An IBNR impairment
provision represents an interim step pending the identification of impairment losses on an individual asset in a group of financial assets. As soon as information is available that specifically identifies losses on individually impaired assets in a
group, those assets are removed from the group. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be, recognised are not included in a collective assessment of impairment. Collective evaluation of impairment For the purpose of collective evaluation
of impairment (individually insignificant impaired assets and IBNR), financial assets are grouped on the basis of similar risk characteristics. These characteristics are relevant to the estimation of future cash flows for groups of such assets by
being indicative of the counterpartys ability to pay all amounts due according to the contractual terms of the assets being evaluated. Future cash flows in a
group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the group and historical loss experience for assets with credit risk characteristics similar to those
in the group. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of
conditions in the historical period that do not currently exist. The methodology and assumptions used for estimating future cash flows are reviewed regularly to
reduce any differences between loss estimates and actual loss experience. Impairment loss For loans and receivables and assets held to maturity, the amount of impairment loss is measured as the difference between the assets carrying amount and the
present value of estimated future cash flows discounted at the assets original effective interest rate. The amount of the loss is recognised using an allowance account and is included in the income statement. Following impairment, interest income is recognised using the original effective rate of interest which was used to discount the future cash flows for the purpose of
measuring the impairment loss. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised, the previously recognised impairment loss
is reversed by adjusting the allowance account. The amount of the reversal is recognised in the income statement. When a loan has been subjected to a specific
provision and the prospects of recovery do not improve, a time will come when it may be concluded that there is no real prospect of recovery. When this point is reached, the amount of the loan which is considered to be








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15 Impairment of financial assets(continued)






beyond the prospect of recovery is written off against the related provision for loan impairment. Subsequent recoveries of amounts previously written off decrease the amount of the provision for
loan impairment in the income statement. Assets acquired in exchange for loans and receivables in order to achieve an orderly realisation are accounted for as a
disposal of the loan and an acquisition of an asset. Any further impairment of the assets or business acquired is treated as an impairment of the relevant asset and not as an impairment of the original instrument. Collateralised financial assets The calculation of the present value of the
estimated future cash flows of a collateralised financial asset reflects the cash flows that may result from foreclosure, costs for obtaining and settling the collateral, and whether or not foreclosure is probable. Past due loans When a borrower fails to make a contractually due payment, a
loan is deemed to be past due. Past due days is a term used to describe the cumulative numbers of days that a missed payment is overdue. Past due days commence from the close of business on the day on which a payment is due but not
received. In the case of overdrafts, past due days are counted once a borrower: 

has breached an advised limit; 

has been advised of a limit lower than the then current outstandings; or 

has drawn credit without authorisation. When a borrower is past due, the entire exposure is reported as past due, rather
than the amount of any excess or arrears. Financial investments available for sale In the case of equity securities classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is considered in
determining whether impairment exists. Where such evidence exists, the cumulative net loss that had previously been recognised in other comprehensive income is recognised in the income statement as a reclassification adjustment. Reversals of
impairment of equity securities are not recognised in the income statement and increases in the fair value of equity securities after impairment are recognised in other comprehensive income. In the case of debt securities classified as available for sale, impairment is assessed on the same criteria as for all other debt financial assets. Impairment is
recognised by transferring the cumulative loss that has been recognised directly in other comprehensive income to the income statement. Any subsequent increase in the fair value of an available for sale debt security is included in other
comprehensive income unless the increase in fair value can be objectively related to an event that occurred after the impairment was recognised in the income statement, in which case the impairment loss or part thereof is reversed. Loans renegotiated and forbearance From time to time, the Group will modify
the original terms of a customers loan either as part of the on-going relationship with the customer or arising from changes in the customers circumstances such as when that customer is unable to make the agreed original contractual
repayments. Forbearance A forbearance agreement is entered into where the
customer is in financial difficulty to the extent that they are unable to repay both the principal and interest on their loan in accordance with their original contract. Following an assessment of the customers repayment capacity, a potential
solution will be determined from the options available. There are a number of different types of forbearance options including interest and/or arrears capitalisation, interest rate adjustments, payment holidays, term extensions and equity swaps.
These are detailed in the Credit Risk section 3.1. A request for a forbearance solution acts as a trigger for an impairment test. All loans that are assessed for a
forbearance solution are tested for impairment under IAS 39 and where a loan is deemed impaired, an appropriate provision is raised to cover the difference between the loans carrying value and the present value of estimated future cashflows
discounted at the loans original effective interest rate. Where, having assessed the loan for impairment and the loan is not deemed to be impaired, it is included within the collective assessment as part of the IBNR provision calculation. Forbearance mortgage loans, classified as impaired, may be upgraded from impaired status, subject to a satisfactory assessment by the appropriate credit authority as to
the borrowers continuing ability and willingness to repay and confirmation that the relevant security held by the Group continues to be enforceable. In this regard, the borrower is required to display a satisfactory performance following the
restructuring of the loan in accordance with new agreed terms, comprising typically, a period of six months of consecutive payments of full principal and interest and, the upgrade would initially be to Watch/Vulnerable grades. In some non-mortgage
cases, based on assessment by the relevant credit authority, the upgrade out of impaired to performing status may be earlier than six months, as the debt may have been reduced to a sustainable level. Where upgraded out of impaired, loans are
included in the Groups collective assessment for IBNR provisions.








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15 Impairment of financial assets(continued) Where the terms on a renegotiated loan which has been subject to an impairment provision differ substantially from the original loan terms either in a quantitative or
qualitative analysis, the original loan is derecognised and a new loan is recognised at fair value. Any difference between the carrying amount of the loan and the fair value of the new renegotiated loan terms is recognised in the income statement.
Interest accrues on the new loan based on the current market rates in place at the time of the renegotiation. Where a loan has been subject to an impairment
provision and the renegotiation leads to a customer granting equity to the Group in exchange for any loan balance outstanding, the new instrument is recognised at fair value with any difference to the loan carrying amount recognised in the income
statement. Non-forbearance renegotiation Occasionally, the Group may
temporarily amend the contractual repayments terms on a loan (e.g. payment moratorium) for a short period of time due to a temporary change in the life circumstances of the borrower. Because such events are not directly linked to repayment capacity,
these amendments are not considered forbearance. The changes in expected cash flows are accounted for under IAS 39.AG8 i.e. the carrying amount of the loan is adjusted to reflect the revised estimated cash flows which are discounted at the original
effective interest rate. Any adjustment to the carrying amount of the loan is reflected in the income statement as interest income/expense. However, where the terms
on a renegotiated loan differ substantially from the original loan terms either in a quantitative or qualitative analysis, the original loan is derecognised and a new loan is recognised at fair value. Any difference arising between the derecognised
loan and the new loan is recognised in the income statement. Where a customers request for a modification to the original loan agreement is deemed not to be a
forbearance request (i.e. the customer is not in financial difficulty to the extent that they are unable to repay both the principal and interest), these loans are not disaggregated for monitoring/reporting or IBNR assessment purposes. 16 Determination of fair value of financial instruments The fair value
of a financial instrument is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. Financial assets are initially recognised at fair value, and, with the exception of financial assets at fair value through profit or loss, the initial carrying amount is
adjusted for direct and incremental transaction costs. Financial liabilities are initially recognised at fair value, generally being their issue proceeds (fair
value of consideration received), net of transaction costs incurred. Subsequent to initial recognition, the methods used to determine the fair value of financial
instruments include quoted prices in active markets where those prices are considered to represent actual and regularly occurring market transactions on an arms length basis. Where quoted prices are not available or are unreliable because of
market inactivity, fair values are determined using valuation techniques. These valuation techniques which use, to the extent possible, observable market data, include the use of recent arms length transactions, reference to other similar
instruments, option pricing models and discounted cash flow analysis and other valuation techniques commonly used by market participants. Quoted prices in active
markets Quoted market prices are used where those prices are considered to represent actual and regularly occurring market transactions on an arms length
basis, in active markets. Valuations for negotiable instruments such as debt and equity securities are determined using bid prices for asset positions and offer
prices for liability positions. Where securities are traded on an exchange, the fair value is based on prices from the exchange. The market for debt securities largely operates on an over the counter basis which means that there is not
an official clearing or exchange price for these security instruments. Therefore, market makers and/or investment banks (contributors) publish bid and offer levels which reflect an indicative price that they are prepared to buy and sell
a particular security. The Groups valuation policy requires that the prices used in determining the fair value of securities quoted in active markets must be sourced from established market makers and/or investment banks. Valuation techniques In the absence of quoted market prices, and in the case
of over-the-counter derivatives, fair value is calculated using valuation techniques. Fair value may be estimated using quoted market prices for similar instruments, adjusted for differences between the quoted instrument and the instrument being
valued. Where the fair value is calculated using discounted cash flow analysis, the methodology is to use, to the extent possible, market data that is either directly observable or is implied from instrument prices, such as interest rate yield
curves, equities and commodities prices, credit spreads, option volatilities and currency rates. In addition, the Group considers the impact of own credit risk when valuing its derivative liabilities.








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16 Determination of fair value of financial instruments(continued) The valuation methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. The
assumptions involved in these valuation techniques include:- 

The likelihood and expected timing of future cash flows of the instrument. These cash flows are generally governed by the terms of the instrument, although management judgement may be required when the ability of the
counterparty to service the instrument in accordance with the contractual terms is in doubt. In addition, future cash flows may also be sensitive to the occurrence of future events, including changes in market rates; and 

Selecting an appropriate discount rate for the instrument, based on the interest rate yield curves including the determination of an appropriate spread for the instrument over the risk-free rate. The spread is adjusted
to take into account the specific credit risk profile of the exposure. Certain financial instruments (both assets and liabilities) may be valued on
the basis of valuation techniques that feature one or more significant market inputs that are not observable. When applying a valuation technique with unobservable data, estimates are made to reflect uncertainties in fair values resulting from a
lack of market data, for example, as a result of illiquidity in the market. For these instruments, the fair value measurement is less reliable. Inputs into valuations based on non-observable data are inherently uncertain because there are little or
no current market data available from which to determine the level at which an arms length transaction would occur under normal business conditions. However, in most cases there is some market data available on which to base a determination of
fair value, for example historical data, and the fair values of most financial instruments will be based on some market observable inputs even where the non-observable inputs are significant. The Group tests the outputs of the model to ensure that it reflects current market conditions. The calculation of fair value for any financial instrument may require
adjustment of the quoted price or the valuation technique output to reflect the cost of credit risk and the liquidity of the market, where these are not embedded in underlying valuation techniques or prices used. The choice of contributors, the quality of market data used for pricing, and the valuation techniques used are all subject to internal review and approval procedures. 17 Valuation of NAMA senior bonds NAMA senior bonds were received as
consideration for financial assets transferred to NAMA and also as part of the Anglo and EBS transactions (notes 22 and 23 to the financial statements). These bonds are designated as loans and receivables and are separately
disclosed in the statement of financial position as NAMA senior bonds. The bases for measurement, interest recognition and impairment are the same as
those for loans and receivables (see accounting policy numbers 6, 15 and 18). At initial recognition, the bonds were measured at fair value. The bonds carry a
guarantee of the Irish Government, however, they are not marketable instruments. The only secondary market activity in the instruments is their sale and repurchase (repo) to the European Central Bank (ECB) within the regular
Eurosystem open market operations. The bonds are not traded in the market and there are no comparable bonds trading in the market. The fair value on initial
recognition was determined using a valuation technique. The absence of quoted prices in an active market required increased use of management judgement in the estimation of fair value. This judgement included but was not limited to: evaluating
available market information; evaluating relevant features of the instruments which market participants would factor into an appropriate valuation technique; determining the cash flows generated by the instruments including cash flows from assumed
repo transactions; identifying a risk free discount rate; and applying an appropriate credit spread. 18 Financial assets The Group classifies its financial assets into the following categories: - financial assets at fair value through profit or loss; loans and receivables; and available for
sale financial assets. Purchases and sales of financial assets are recognised on trade date, being the date on which the Group commits to purchase or sell the
assets. Loans are recognised when cash is advanced to the borrowers. Interest is calculated using the effective interest method and credited to the income
statement. Dividends on available for sale equity securities are recognised in the income statement when the entitys right to receive payment is established. Impairment losses and translation differences on the amortised cost of monetary items are recognised in the income statement. Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired or when the Group has transferred substantially all the
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18 Financial assets(continued) Financial assets at fair value through profit or loss This category can have
two sub categories: - Financial assets held for trading; and those designated at fair value through profit or loss at inception. A financial asset is classified in this category if it is acquired principally for the purpose of selling in the near
term; part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit taking; or if it is so designated at initial recognition by management, subject
to certain criteria. The assets are recognised initially at fair value and transaction costs are taken directly to the income statement. Interest and dividends on
assets within this category are reported in interest income, and dividend income, respectively. Gains and losses arising from changes in fair value are included directly in the income statement within net trading income. Derivatives are also classified in this category unless they have been designated as hedges or qualify as financial guarantee contracts. Loans and receivables Loans and receivables are non-derivative financial
assets with fixed or determinable payments that are not quoted in an active market and which are not classified as available for sale. They arise when the Group provides money or services directly to a customer with no intention of trading the loan.
Loans and receivables are initially recognised at fair value adjusted for direct and incremental transaction costs and are subsequently carried on an amortised cost basis. Available for sale Available for sale financial assets are non-derivative
financial investments that are designated as available for sale and are not categorised into any of the other categories described above. Available for sale financial assets are those intended to be held for an indefinite period of time, which may
be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. Available for sale financial assets are initially recognised at fair value adjusted for direct and incremental transaction costs. They are
subsequently held at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income until sale or impairment when the cumulative gain or loss is transferred to the income statement as a recycling
adjustment. Assets reclassified from the held for trading category are recognised at fair value. Parent Company financial statements: Investment in subsidiary
and associated undertakings The Company accounts for investments in subsidiary and associated undertakings that are not classified as held for sale at cost less
provisions for impairment. If the investment is classified as held for sale, the Company accounts for it at the lower of its carrying value and fair value less costs to sell. Dividends from a subsidiary or an associated undertaking are recognised in the income statement, when the Companys right to receive the dividend is established. 19 Financial liabilities Issued financial instruments or their
components are classified as liabilities where the substance of the contractual arrangement results in the Group having a present obligation to either deliver cash or another financial asset to the holder, to exchange financial instruments on terms
that are potentially unfavourable or to satisfy the obligation otherwise than by the exchange of a fixed amount of cash or another financial asset for a fixed number of equity shares. Financial liabilities are initially recognised at fair value, being their issue proceeds (fair value of consideration received), net of transaction costs incurred.
Financial liabilities are subsequently measured at amortised cost, with any difference between the proceeds net of transaction costs and the redemption value recognised in the income statement using the effective interest method. Where financial liabilities are classified as trading they are also initially recognised at fair value with the related transaction costs taken directly to the income
statement. Gains and losses arising from changes in fair value are recognised directly in the income statement within net trading income. Preference shares which
carry a mandatory coupon, are classified as financial liabilities. The dividends on these preference shares are recognised in the income statement as interest expense using the effective interest method. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. Any gain or loss on the extinguishment or
remeasurement of a financial liability is recognised in profit or loss.








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20 Property, plant and equipment Property, plant and equipment are stated at cost, or deemed cost, less accumulated depreciation and provisions for impairment, if any. Additions and subsequent
expenditures are capitalised only to the extent that they enhance the future economic benefits expected to be derived from the asset. No depreciation is provided on freehold land. Property, plant and equipment are depreciated on a straight line
basis over their estimated useful economic lives. Depreciation is calculated based on the gross carrying amount, less the estimated residual value at the end of the assets economic lives. The Group uses the following useful lives when calculating depreciation: Freehold buildings and long-leasehold property



50 yearsShort leasehold property



life of lease, up to 50 yearsCosts of adaptation of freehold and leasehold propertyBranch properties



up to 10 years(1)Office properties



up to 15 years(1)Computers and similar equipment



3  7 yearsFixtures and fittings and other equipment



5  10 years The Group reviews its depreciation rates regularly, at least annually, to take account of any change in circumstances. When deciding on
useful lives and methods, the principal factors that the Group takes into account are the expected rate of technological developments and expected market requirements for, and the expected pattern of usage of, the assets. When reviewing residual
values, the Group estimates the amount that it would currently obtain for the disposal of the asset, after deducting the estimated cost of disposal if the asset was already of the age and condition expected at the end of its useful life. Gains and losses on disposal of property, plant and equipment are included in the income statement. It is Group policy not to revalue its property, plant and equipment. (1)Subject to the maximum remaining life of the lease. 21 Intangible assets Goodwill Goodwill may arise on the acquisition of subsidiary and associated undertakings. The excess arising on the fair value of the consideration paid in a business combination
over the acquired interests in the fair value of the identifiable assets, liabilities and contingent liabilities at the date of acquisition is capitalised as goodwill. For the purpose of calculating goodwill, fair values of acquired assets,
liabilities and contingent liabilities are determined by reference to market values or by discounting expected future cash flows to present value. This discounting is performed either using market rates or by using risk-free rates and risk adjusted
expected future cash flows. Goodwill is capitalised and reviewed annually for impairment, or more frequently when there are indications that impairment may have
occurred. Goodwill is allocated to cash-generating units for the purpose of impairment testing. Goodwill arising on the acquisition of an associated undertaking is included in the carrying amount of the investment in the consolidated financial
statements. Gains or losses on the disposal of an entity include the carrying amount of the goodwill relating to the entity sold. Goodwill previously written off to
reserves under Irish GAAP has not been reinstated and will not be included in calculating any subsequent profit or loss on disposal. Computer software and other
intangible assets Computer software and other intangible assets are stated at cost, less amortisation on a straight line basis and provisions for impairment, if
any. The identifiable and directly associated external and internal costs of acquiring and developing software are capitalised where the software is controlled by the Group, and where it is probable that future economic benefits that exceed its cost
will flow from its use over more than one year. Costs associated with maintaining software are recognised as an expense when incurred. Capitalised computer software is amortised over 3 to 7 years. Other intangible assets are amortised over the life
of the asset. Computer software and other intangible assets are reviewed for impairment when there is an indication that the asset may be impaired. Intangible assets not yet available for use are reviewed for impairment on an annual basis.








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22 Derivatives and hedge accounting Derivatives, such as interest rate swaps, options and forward rate agreements, currency swaps and options, and equity index options are used for trading purposes while
interest rate swaps, currency swaps, cross currency interest rate swaps and credit derivatives are used for hedging purposes. The Group maintains trading positions
in a variety of financial instruments including derivatives. Trading transactions arise both as a result of activity generated by customers and from proprietary trading with a view to generating incremental income. Non-trading derivative
transactions comprise transactions held for hedging purposes as part of the Groups risk management strategy against assets, liabilities, positions and cash flows. Derivatives Derivatives are measured initially at fair value on the date on
which the derivative contract is entered into and subsequently remeasured at fair value. Fair values are obtained from quoted market prices in active markets, including recent market transactions, and from valuation techniques using discounted cash
flow models and option pricing models as appropriate. Derivatives are included in assets when their fair value is positive, and in liabilities when their fair value is negative, unless there is the legal ability and intention to settle an asset and
liability on a net basis. The best evidence of the fair value of a derivative at initial recognition is the transaction price (i.e. the fair value of the
consideration given or received) unless the fair value of that instrument is evidenced by comparison with other observable current market transactions in the same instrument (i.e. without modification or repackaging) or based on a valuation
technique whose variables include only data from observable markets. Profits or losses are only recognised on initial recognition of derivatives when there are
observable current market transactions or valuation techniques that are based on observable market inputs. Embedded derivatives Some hybrid contracts contain both a derivative and a non-derivative component. In such cases, the derivative component is termed an embedded derivative. Where the
economic characteristics and risks of embedded derivatives are not closely related to those of the host contract, and the hybrid contract itself is not carried at fair value through profit or loss, the embedded derivative is treated as a separate
derivative, and reported at fair value with gains and losses being recognised in the income statement. Hedging All derivatives are carried at fair value and the accounting treatment of the resulting fair value gain or loss depends on whether the derivative is designated as a
hedging instrument, and if so, the nature of the item being hedged. Where derivatives are held for risk management purposes, and where transactions meet the criteria specified in IAS 39 Financial Instruments: Recognition and
Measurement, the Group designates certain derivatives as either: -

hedges of the fair value of recognised assets or liabilities or firm commitments (fair value hedge); or -

hedges of the exposure to variability of cash flows attributable to a recognised asset or liability, or a highly probable forecasted transaction (cash flow hedge); or -

hedges of a net investment in a foreign operation. When a financial instrument is designated as a hedge, the Group
formally documents the relationship between the hedging instrument and hedged item as well as its risk management objectives and its strategy for undertaking the various hedging transactions. The Group also documents its assessment, both at hedge
inception and on an ongoing basis, of whether the derivatives that are used in hedging transactions are highly effective in offsetting changes in fair values or cash flows of the hedged items. The Group discontinues hedge accounting when: a)
it is determined that a derivative is not, or has ceased to be, highly effective as a hedge; b)
the derivative expires, or is sold, terminated, or exercised; c)
the hedged item matures or is sold or repaid; or d)
a forecast transaction is no longer deemed highly probable. To the extent that the changes in the fair value of the
hedging derivative differ from changes in the fair value of the hedged risk in the hedged item; or the cumulative change in the fair value of the hedging derivative differs from the cumulative change in the fair value of expected future cash flows
of the hedged item, ineffectiveness arises. The amount of ineffectiveness, (taking into account the timing of the expected cash flows, where relevant) provided it is not so great as to disqualify the entire hedge for hedge accounting, is recorded in
the income statement. In certain circumstances, the Group may decide to cease hedge accounting even though the hedge relationship continues to be highly effective
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22 Derivatives and hedge accounting(continued) Fair value hedge accounting Changes in fair value of derivatives that qualify
and are designated as fair value hedges are recorded in the income statement, together with changes in the fair value of the hedged asset or liability that are attributable to the hedged risk. If the hedge no longer meets the criteria for hedge
accounting, the fair value hedging adjustment cumulatively made to the carrying value of the hedged item is, for items carried at amortised cost, amortised over the period to maturity of the previously designated hedge relationship using the
effective interest method. For available for sale financial assets, the fair value adjustment for hedged items is recognised in the income statement using the effective interest method. If the hedged item is sold or repaid, the unamortised fair
value adjustment is recognised immediately in the income statement. Cash flow hedge accounting The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is initially recognised directly in other
comprehensive income and included in the cash flow hedging reserve in the statement of changes in equity. The amount recognised in other comprehensive income is reclassed to profit or loss as a reclassification adjustment in the same period as the
hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. Any ineffective portion of the gain or loss on the hedging instrument is recognised in the income statement immediately. When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss recognised in other
comprehensive income from the time when the hedge was effective remains in equity and is reclassified to the income statement as a reclassification adjustment as the forecast transaction affects profit or loss. When a forecast transaction is no
longer expected to occur, the cumulative gain or loss that was recognised in other comprehensive income from the period when the hedge was effective is reclassified to the income statement. Net investment hedge Hedges of net investments in foreign operations,
including monetary items that are accounted for as part of the net investment, are accounted for similarly to cash flow hedges. The effective portion of the gain or loss on the hedging instrument is recognised in other comprehensive income and the
ineffective portion is recognised immediately in the income statement. The cumulative gain or loss previously recognised in other comprehensive income is recognised in the income statement on the disposal or partial disposal of the foreign
operation. Hedges of net investments may include non-derivative liabilities as well as derivative financial instruments. Derivatives that do not qualify for
hedge accounting Certain derivative contracts entered into as economic hedges do not qualify for hedge accounting. Changes in the fair value of these derivative
instruments are recognised immediately in the income statement. 23 Non-current assets held for sale and discontinued operations Discontinued operations A discontinued operation is a component of the
Groups business that represents a separate major line of business or geographical area of operations, or is a subsidiary acquired exclusively with a view to resale, that has been disposed of, has been abandoned or that meets the criteria to be
classified as held for sale. Discontinued operations are presented in the income statement (including comparatives) as a separate amount, comprising the total of
the post tax profit or loss of the discontinued operations for the period together with any post-tax gain or loss recognised on the measurement of relevant assets to fair value less costs to sell, or on disposal of the assets/disposal groups
constituting discontinued operations. In presenting interest income and interest expense and various expenses relating to discontinued operations, account is taken of the continuance or otherwise of these income statement items post disposal of the
discontinued operation. Corporate overhead, which was previously allocated to the business being disposed of, is considered to be part of continuing operations. In the statement of financial position, the assets and liabilities of discontinued
operations are shown within the caption Disposal groups and non-current assets/(liabilities) held for sale separate from other assets and liabilities. On reclassification as discontinued operations, there is no restatement in the
statement of financial position of prior periods for assets and liabilities held for sale. Disposal groups and non-current assets held for sale A non-current asset or a disposal group comprising assets and liabilities is classified as held for sale if it is expected that its carrying amount will be recovered
principally through sale rather than through continuing use, it is available for immediate sale and sale is highly probable within one year. For the sale to be highly probable, the appropriate level of management must be committed to a plan to sell
the asset or disposal group. On initial classification as held for sale, generally, non-current assets and disposal groups are measured at the lower of previous
carrying amount and fair value less costs to sell with any adjustments taken to the income statement. The same applies to gains and losses on subsequent remeasurement. However, financial assets within the scope of IAS 39 continue to be measured in
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23 Non-current assets held for sale and discontinued operations(continued) Impairment losses subsequent to classification of assets as held for sale are recognised in the income statement. Subsequent increases in fair value less costs to sell of
assets that have been classified as held for sale are recognised in the income statement to the extent that the increase is not in excess of any cumulative impairment loss previously recognised in respect of the asset. Assets classified as held for
sale are not depreciated. Gains and losses on remeasurement and impairment losses subsequent to classification as disposal groups and non-current assets held for
sale are shown within continuing operations in the income statement, unless they qualify as discontinued operations. Disposal groups and non-current assets held for
sale which are not classified as discontinued operations are presented separately from other assets and liabilities on the statement of financial position. Prior periods are not reclassified. 24 Collateral and netting The Group enters into master netting agreements
with counterparties, to ensure that if an event of default occurs, all amounts outstanding with those counterparties will be settled on a net basis. Collateral The Group obtains collateral in respect of customer receivables where this is considered appropriate. The collateral normally takes the form of a lien over the
customers assets and gives the Group a claim on these assets for both existing and future customer liabilities. The collateral is, in general, not recorded on the statement of financial position. The Group also receives collateral in the form of cash or securities in respect of other credit instruments, such as stock borrowing contracts and derivative contracts
in order to reduce credit risk. Collateral received in the form of securities is not recorded on the statement of financial position. Collateral received in the form of cash is recorded on the statement of financial position with a corresponding
liability. Therefore, in the case of cash collateral, these amounts are assigned to deposits received from banks or other counterparties . Any interest payable or receivable arising is recorded as interest expense or interest income respectively. In certain circumstances, the Group will pledge collateral in respect of its own liabilities or borrowings. Collateral pledged in the form of securities or loans
and receivables continues to be recorded on the statement of financial position. Collateral paid away in the form of cash is recorded in loans and receivables to banks or customers. Any interest payable or receivable arising is recorded as interest
expense or interest income respectively. Netting Financial assets and
financial liabilities are offset and the net amount reported in the statement of financial position if, and only if, there is a currently enforceable legal right to set off the recognised amounts and there is an intention to settle on a net basis,
or to realise the asset and settle the liability simultaneously. This is not generally the case with master netting agreements, therefore, the related assets and liabilities are presented gross on the statement of financial position. 25 Financial guarantees Financial guarantees are given to banks, financial
institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities (facility guarantees) and to other parties in connection with the performance of customers under obligations relating to
contracts, advance payments made by other parties, tenders, retentions and the payment of import duties. In its normal course of business, Allied Irish Banks, p.l.c. (the parent company) issues financial guarantees to other Group entities. Financial
guarantees are initially recognised in the financial statements at fair value on the date that the guarantee is given. Subsequent to initial recognition, the Groups liabilities under such guarantees are measured at the higher of the initial
measurement, less amortisation calculated to recognise in the income statement the fee income earned over the period, and the best estimate of the expenditure required to settle any financial obligation arising as a result of the guarantees at the
year-end reporting date. Any increase in the liability relating to guarantees is taken to the income statement in provisions for undrawn contractually committed facilities and guarantees. 26 Sale and repurchase agreements (including stock borrowing and lending) Financial assets may be lent or sold subject to a commitment to repurchase them (repos). Such securities are retained on the statement of financial position
when substantially all the risks and rewards of ownership remain with the Group. The liability to the counterparty is included separately on the statement of financial position. Similarly, when securities are purchased subject to a commitment to
resell (reverse repos), or where the Group borrows securities, but does not acquire the risks and rewards of ownership, the transactions are treated as collateralised loans, and the securities are not usually included in the statement of
financial position. The difference between the sale and repurchase price is accrued over the life of the agreements using the effective interest method. Securities lent to counterparties are also retained in the financial statements. The exception
to this is where these are sold to third parties, at which point the obligation to repurchase the securities is recorded as a trading liability at fair value and any subsequent gain or loss included in trading income.








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27 Leases Lessor Assets leased to customers are classified as finance leases if the lease agreements transfer substantially all the risks and rewards of ownership, with or without
ultimate legal title. When assets are held subject to a finance lease, the present value of the lease payments, discounted at the rate of interest implicit in the lease, is recognised as a receivable. The difference between the total payments
receivable under the lease and the present value of the receivable is recognised as unearned finance income, which is allocated to accounting periods under the pre-tax net investment method to reflect a constant periodic rate of return. Assets leased to customers are classified as operating leases if the lease agreements do not transfer substantially all the risks and rewards of ownership. The leased
assets are included within property, plant and equipment on the statement of financial position and depreciation is provided on the depreciable amount of these assets on a systematic basis over their estimated useful lives. Lease income is
recognised on a straight line basis over the period of the lease unless another systematic basis is more appropriate. Lessee Operating lease rentals payable are recognised as an expense in the income statement on a straight line basis over the lease term unless another systematic basis is more
appropriate. 28 Shareholders equity Issued financial instruments,
or their components, are classified as equity where they meet the definition of equity and confer on the holder a residual interest in the assets of the Group. On
extinguishment of equity instruments, gains or losses arising are recognised net of tax directly in the statement of changes in equity. Share capital Share capital represents funds raised by issuing shares in return for cash or other consideration. Share capital comprises ordinary shares, deferred shares and preference
shares of the entity. Share premium When shares are issued at a premium
whether for cash or otherwise, the excess of the amount received over the par value of the shares is transferred to share premium. Share issue costs Incremental costs directly attributable to the issue of new shares or options are charged, net of tax, to the share premium account. Dividends and distributions Dividends on ordinary shares are recognised in
equity in the period in which they are approved by the Companys shareholders, or in the case of the interim dividend when it has been approved for payment by the Board of Directors. Dividends declared after the year-end reporting date are
disclosed in note 70. Dividends on preference shares accounted for as equity are recognised in equity when approved for payment by the Board of Directors. Other equity interests Other equity interests relate to Reserve Capital
Instruments (note 48). Any gain or loss on the extinguishment or remeasurement of the Reserve Capital Instruments is recognised in equity net of tax. Capital
reserves Capital reserves represent transfers from retained earnings in accordance with relevant legislation. Revaluation reserves Revaluation reserves represent the unrealised surplus,
net of tax, which arose on revaluation of properties prior to the implementation of IFRS at 1 January 2004. Capital redemption reserves These reserves arose from the renominalisation of the ordinary shares of the company. Each ordinary share was subdivided into one ordinary share of  0.01 each and thirty one deferred shares of  0.01 each. The deferred shares were acquired by AIB and immediately
cancelled. Following cancellation, the amount standing to the credit of the deferred shares account was transferred to a capital redemption reserves account.








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28 Shareholders equity(continued) Available for sale securities reserves Available for sale securities reserves
represent the net unrealised gain or loss, net of tax, arising from the recognition in the statement of financial position of available for sale financial investments at fair value. Cash flow hedging reserves Cash flow hedging reserves represent the net gains
or losses, net of tax, on effective cash flow hedging instruments that will be reclassified to the income statement when the hedged transaction affects profit or loss. Capital contributions Capital contributions represent the receipt of
non-refundable considerations arising from transactions with the Irish Government (note 63). These contributions comprise both financial and non-financial net assets. The contributions are classified as equity and may be either distributable or
non-distributable. Capital contributions are distributable if the assets received are in the form of cash or another asset that is readily convertible to cash. Otherwise, they are treated as non-distributable until the final sale of the subsidiary.
Capital contributions arose during 2011 from (a) EBS transaction; (b) Anglo transaction; (c) issue of contingent capital notes; and (d) non-refundable receipts from the Irish Government and the NPRFC. The capital contribution from the EBS transaction (note 23) is treated as non-distributable as the related net assets received are largely non-cash in nature. In the
case of the Anglo transaction (note 22) the excess of the assets over the liabilities comprised of NAMA senior bonds. On initial recognition, this excess was accounted for as a non-distributable capital contribution. However, according as NAMA
repays these bonds, the proceeds received will be deemed to be distributable and the relevant amount will be transferred from the capital contribution account to revenue reserves. AIB issued contingent convertible capital notes to the Irish Government (note 44) where the proceeds of issue amounting to 1.6 billion exceeded the fair value of the instruments issued. This excess has been accounted for as a capital contribution and will be treated as distributable according as the fair value adjustment on
the notes amortises to the income statement. The non-refundable receipts of
 6,054 million from the Irish Government and the NPRFC are distributable. These are included in revenue reserves. Revenue reserves Revenue reserves represent retained earnings of the parent
company, subsidiaries and associated undertakings. It is shown net of the cumulative deficit within the defined benefit pension schemes and other appropriate adjustments. Foreign currency translation reserves The foreign currency translation
reserves represent the cumulative gains and losses on the retranslation of the Groups net investment in foreign operations, at the rate of exchange at the year-end reporting date net of the cumulative gain or loss on instruments designated as
net investment hedges. Treasury shares Where the Company or other members
of the consolidated Group purchase the Companys equity share capital, the consideration paid is deducted from total shareholders equity as treasury shares until they are cancelled. Where such shares are subsequently sold or re-issued,
any consideration received is included in shareholders equity. Share based payments reserves The share based payment expense charged to the income statement is credited to the share based payment reserve over the vesting period of the shares and options. Upon
grant of shares and exercise and lapsing of options, the amount in respect of the award credited to the share based payment reserves is transferred to revenue reserves. Non-controlling interests Non-controlling interests comprise both equity and
other equity interests. Equity interests relate to the interests of outside shareholders in consolidated subsidiaries. Other equity interests relate to non-cumulative perpetual preferred securities issued by a subsidiary.








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29 Insurance and investment contracts The Group accounted for its Long Term business in Aviva Life Holdings Ireland Limited (ALH) in accordance with IFRS 4 Insurance Contractsup to the date on which it was classified as held for sale (accounting policy 23). Insurance contracts are those contracts containing significant insurance risk. In the case of life contracts, insurance risk exists if the amount payable on the
occurrence of an insured event exceeds the assets backing the contract, or could do so in certain circumstances, and the product of the probability of the insured event occurring and the excess amount payable has commercial substance. In particular,
guaranteed equity bonds which guarantee a return of the original premium irrespective of the current value of the backing assets are deemed to be insurance contracts notwithstanding that at the year-end reporting date there may be no excess of the
original premium over the backing assets. Investment contracts are contracts that do not have significant insurance risk. Insurance contracts The Group accounts for its insurance contracts using the Market Consistent Embedded Value Principles (MCEV), published by the CFO Forum. The embedded value
comprises two components: the net assets attributable to the Group and the present value of the in-force business (VIF). The change in the VIF before tax is accounted for as revenue. The value is estimated as the net present value of
future cash flows attributable to the Group before tax, based on the market value of the assets at the year-end reporting date, using assumptions that reflect experience and a long-term outlook for the economy and then discounting at an appropriate
risk free yield curve rate. Insurance contract liabilities are calculated on a statutory basis. Premiums are recognised as revenue when due from the policyholder.
Claims, which together with the increase in insurance contract liabilities are recognised in the income statement as they arise, are the cost of all claims arising during the period. Investment contracts Investment contracts are primarily unit-linked. Unit
linked liabilities are deemed equal to the value of units attaching to contracts at the year-end reporting date. The liability is measured at fair value, which is the bid value of the assets held to match the liability. Increases in investment
contract liabilities are recognised in the income statement as they arise. Revenue in relation to investment management services is recognised as the services are provided. Certain upfront fees and charges have been deferred and are recognised as
income over the life of the contract. Premiums and claims are accounted for directly in the statement of financial position as adjustments to the investment contract liability. 30 Segment reporting An operating segment is a component of the Group that
engages in business activities from which it earns revenues and incurs expenses. The Group has identified reportable segments on the basis of internal reports about components of the Group that are regularly reviewed by the Chief Operating Decision
Maker (CODM) in order to allocate resources to the segment and assess its performance. Based on this identification, the reportable segments are the operating segments within the Group, the head of each being a member of the Leadership
Team. The Leadership Team is the CODM and it relies primarily on the management accounts to assess performance of the reportable segments and when making resource allocation decisions. Transactions between operating segments are on normal commercial terms and conditions, with internal charges and transfer pricing adjustments reflected in the
performance of each operating segment. Revenue sharing agreements are used to allocate external customer revenues to an operating segment on a reasonable basis. Interest income earned on capital not allocated to operating segments is retained in
Group. Geographical segments provide products and services within a particular economic environment that is subject to risks and rewards that are different to those
components operating in other economic environments. The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction. In addition, geographic distribution of loans and related
impairment is also based on the location of the office recording the transaction. 31 Cash and cash equivalents For the purposes of the cash flow statement, cash comprises cash on hand and demand deposits, and cash equivalents comprise highly liquid investments that are convertible
into cash with an insignificant risk of changes in value and with original maturities of less than three months.








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32 Prospective accounting changes The following new accounting standards and amendments to existing standards approved by the IASB, but not early adopted by the Group, will impact the Groups
financial reporting in future periods. The Group is currently considering the impacts of these amendments. The new accounting standards and amendments which are more relevant to the Group are detailed below.  Pronouncement

Nature of change

IASB effective dateAmendments to IAS 1 Presentation of Items of Other
Comprehensive Income

The amendments require companies preparing financial statements in accordance with IFRSs to group together items within other comprehensive income that
will be reclassified subsequently to profit or loss when specific conditions are met and those that will not be reclassified subsequently. The amendments also reaffirm existing requirements that items in profit or loss and other comprehensive income
may be presented as either a single statement or two consecutive statements. These amendments relate to disclosures and will not have a significant impact on the financial statements in future years.

Annual periods beginning on or after
1 July 2012IAS 19 Employee Benefits(IAS 19 revised 2011)

The amendments result in significant changes to accounting for defined benefit
pension plans. The revised standard eliminates the option to defer recognition of gains and losses. Actuarial gains and losses are now required to be recognised in other comprehensive income and are excluded permanently from profit or loss. The
expected returns on plan assets will no longer be recognised in profit or loss. The expected return and the interest cost are replaced by recording net interest in profit or loss which is calculated using the discount rate used to measure the
pension obligation. Unvested past service costs can no longer be deferred and recognised over the future vesting period. Instead, all past service costs will be recognised at the earlier of when the amendment/curtailment occurs and when the entity
recognises related restructuring or termination costs.

Annual periods
beginning on or after 1 January 2013 with
retrospective application requiredSince the Group did not opt to avail of the corridor approach option in
the past, the impact of the revised standard will be limited to the effects of: (i) replacing the interest cost and expected return on plan assets by a finance cost component comprising the interest on the net defined benefit liability or asset;
(ii) the timing of recognition of unvested past service costs; and (iii) recognition of all administration expenses, with the exception of costs associated with the management of scheme assets, in profit or loss.Based on the assumption that the defined benefit schemes will remain open for the
full year 2013, the Group estimates that the adoption of IAS 19 revised will increase its retirement benefit charge for 2013 by c.  20 million. In
addition, the adoption of IAS 19 revised will require the restatement in 2013 of 2012 comparative amounts. Accordingly, a charge for termination benefits of  130 million which was recognised in 2012, will
be recognised in 2013.IFRS 10 Consolidated Financial Statements

This standard replaces the consolidation guidance in IAS 27 Consolidated and Separate Financial Statementsand SIC-12 Consolidation 
Special Purpose Entities.It introduces a single consolidation model for all entities based on control, irrespective of the nature of the investee. IFRS 10 builds on the existing principles by identifying the concept of control as the
determining factor in which an entity should be included within the consolidated financial statements of the parent company. This new standard will not change consolidation procedures for the Group, but will require management to assess whether an
entity should be consolidated.

Annual periods beginning on or after
1 January 2013








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32 Prospective accounting changes(continued)  Pronouncement

Nature of change

IASB effective dateIFRS 11 Joint Arrangements

IFRS 11 introduces new accounting requirements for joint arrangements, replacing IAS 31 Interests in Joint Ventures, by focusing on the rights
and obligations of the arrangement, rather than its legal form. The option to apply the proportional consolidation method when accounting for jointly controlled entities is removed. The impact on the Group will be dependent on the formation of new
joint arrangements by the Group.

Annual periods beginning on or after
1 January 2013IFRS 12 Disclosure of Interests in Other Entities

IFRS 12 sets out the required disclosures for entities reporting under the two new standards, IFRS 10 Consolidated Financial Statementsand IFRS
11 Joint Arrangements; it also replaces the disclosure requirements currently found in IAS 28 Investments in Associatesand IAS 31 Interests in Joint Ventures.
 The required disclosures aim to provide information to enable users to evaluate the nature of, and
risks associated with, an entitys interests in other entities and the effects of those interests on the entitys financial position, financial performance and cash flows. This basic principle is further supported by more detailed
disclosure objectives and requirements. This new standard will result in enhanced disclosures on the Groups subsidiaries and associates as well as unconsolidated structured entities.

Annual periods beginning on or after
1 January 2013IAS 27 Separate Financial Statements(revised
2011)

The requirements relating to separate financial statements are unchanged and are included in the amended IAS 27. The other sections of IAS 27 are
replaced by IFRS 10 Consolidated Financial Statements. IAS 27 is renamed Separate Financial Statements and is now a standard dealing solely with separate financial statements. The existing guidance and disclosure requirements for
separate financial statements are unchanged.

Annual periods beginning on or after
1 January 2013IAS 28 Investments in Associates and Joint Ventures(revised 2011)

This standard prescribes the accounting for investments in associates and sets out the requirements for the application of the equity method when
accounting for investments in associates and joint ventures. IAS 28 (revised 2011) does not include any disclosure requirements; these are now included in IFRS 12 Disclosure of Interests in Other Entities.

Annual periods beginning on or after
1 January 2013IFRS 13 Fair Value Measurement

This standard established a single source of guidance for fair value measurements under IFRSs. IFRS 13 defines fair value, provides guidance on its
determination and introduces consistent requirements for disclosures on fair values measurements. The standard requires entities to disclose information about the valuation techniques and inputs used to measure fair value, as well as information
about the uncertainty inherent in fair value measurements. This information will be required for both financial and non-financial assets and liabilities. Whilst the impact of the standard will not have a significant impact on reported results or the
financial position of the Group, there will be a requirement for additional disclosures.

Annual periods beginning on or after
1 January 2013








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32 Prospective accounting changes(continued)  Pronouncement

Nature of change

IASB effective dateAnnual improvements to IFRSs: 2009 - 2011 Cycle

In May 2012, the IASB issued its fourth edition of amendments to its standards under the annual improvements process, primarily to remove
inconsistencies and clarify wording. The amendments are to five International Financial Reporting Standards. The more relevant amendments are: 
IAS 1 Presentation of Financial Statements- The amendment clarifies the requirements in relation to comparative information in various circumstances.
 IAS 32 Financial Instruments: Presentation- The amendment clarifies that income tax relating
to distributions to holders of equity instruments and to transaction costs of an equity transaction should be accounted for in accordance with IAS 12 Income Taxes. 
IAS 34 Interim Financial Reporting- The amendment clarifies the requirements on segment information for total assets and total liabilities for each reportable
segment in interim financial reporting.  None of the above amendments is expected to have a
significant impact on reported results or disclosures.

Annual periods beginning on or after
1 January 2013Amendments to IAS 32 Offsetting Financial Assets and
Financial Liabilitiesand Amendments to IFRS 7 Disclosures - Offsetting Financial Assets and Financial Liabilities

These amendments to IAS 32 and IFRS 7 clarify the accounting requirements for offsetting financial instruments and introduce new disclosure requirements that aim to improve the
comparability of financial statements prepared in accordance with IFRS and US GAAP.

IFRS 7: Annual periods beginning on or after
1 January 2013The amendments to IFRS 7 require more extensive disclosures. These disclosures
focus on quantitative information about recognised financial instruments that are offset in the statement of financial position, as well as those recognised financial instruments that are subject to master netting or similar arrangements,
irrespective of whether they are offset.

IAS 32: Annual periods
beginning on or after 1 January 2014The amendments to IAS 32 clarify that in order to offset financial instruments the
right of set-off must be currently available and legally enforceable for all counterparties in the normal course of business, as well as in the event of default, insolvency or bankruptcy.Amendments to IFRS 10 Consolidated Financial
Statements, IFRS 12 Disclosure of Interests in Other Entitiesand IAS 27 Separate Financial Statements on Investment Entities

In October 2012, the IASB issued Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27). The amendments provide an exception from the
requirements of consolidation and instead require investment entities to present their investments in subsidiaries as a net investment. These subsidiaries should be measured at fair value through profit and loss. The exception means that investment
entities will be able to measure all their investments at fair value. The amendments also set out the disclosure requirements for investment entities. The impact of these amendments is being assessed but is not expected to have a significant impact
on reported results or disclosures.  The amendments are still subject to EU endorsement.

Annual periods beginning on or after
1 January 2014








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32 Prospective accounting changes(continued)  Pronouncement

Nature of change

IASB effective dateIFRS 9 Financial Instruments

IFRS 9 will ultimately replace IAS 39 Financial Instruments: Recognition and Measurement. This project consists of three main phases:

Annual periods beginning on or after
1 January 2015Phase 1: Classification and measurementIn November 2009, the IASB issued IFRS 9 Financial Instrumentscovering classification and measurement of financial assets. The new standard aims to enhance the ability of
investors and other users of financial information to understand the accounting for financial assets and to reduce complexity. IFRS 9 uses a single approach to determine whether a financial asset is measured at amortised cost or fair value. The
basis of classification depends on how an entity manages its financial instruments (its business model) and the contractual cash flow characteristics of the financial assets.The IASB reissued IFRS 9 in October 2010. The revised standard carried over the
requirements for derecognition of financial assets and liabilities from IAS 39 and incorporated new requirements on accounting for financial liabilities. Where an entity designates a financial liability on initial recognition at fair value through
profit or loss, the portion of the fair value change due to changes in the liabilitys credit risk is recognised directly in other comprehensive income. The remainder is recognised in profit or loss.Phase 2: Impairment methodologyThe IASB published an exposure draft in November 2009 that proposed an expected loss model for impairment. This phase of IFRS 9 is subject to on-going deliberations and has
not yet been finalised.Phase 3: Hedge accountingIn September 2012, the IASB posted on its website a review draft of the proposed micro hedge accounting requirements that will be incorporated into IFRS 9. The draft proposes a model
that aims to align hedge accounting with risk management activities; establishes a more principles-based approach to hedge accounting; and addresses inconsistencies and weaknesses in the existing model in IAS 39. This phase is expected to be
finalised in the first quarter of 2013. At a later point, further proposals will be issued by the IASB on macro hedging.Since significant aspects of the standard have yet to be finalised, it is
impracticable for the Group to quantify the impact of IFRS 9 at this stage.The new standard is still subject to EU endorsement.








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|LOGO |  | Consolidated income statement for
the year ended 31 December 2012 |  | 






Notes




2012 m




2011 m




2010  mContinuing operationsInterest and similar income


2





3,916





4,429





4,609Interest expense and similar charges


3





(2,810
)




(3,079
)




(2,765)Net interest income








1,106





1,350





1,844Dividend income


4





1





4





1Fee and commission income


5





396





470





585Fee and commission expense


5





(29
)




(29
)




(88)Net trading loss


6





(100
)




(113
)




(201)Gain on redemption/remeasurement of subordinated liabilities and other capital instruments


7











3,277





372Profit/(loss) on transfer of financial instruments to NAMA


8





159





(364
)




(5,969)Other operating (loss)/income


9





(912
)




(255
)




99Other (loss)/income








(485
)




2,990





(5,201)Total operating income/(loss)








621





4,340





(3,357)Administrative expenses


10





(1,817
)




(1,605
)




(1,469)Impairment and amortisation of intangible assets


36





(60
)




(66
)




(126)Depreciation of property, plant and equipment


37





(60
)




(49
)




(54)Total operating expenses








(1,937
)




(1,720
)




(1,649)Operating (loss)/profit before provisions








(1,316
)




2,620





(5,006)Provisions for impairment on loans and receivables


31





(2,434
)




(7,861
)




(6,015)(Charge)/writeback of provisions for liabilities and commitments


43





(9
)




416





(1,029)Provisions for impairment on financial investments available for sale


13





(86
)




(283
)




(74)Operating loss








(3,845
)




(5,108
)




(12,124)Associated undertakings


34





10





(37
)




18Profit/(loss) on disposal of property


14





2





(1
)




46Profit/(loss) on disposal of businesses


15





3





38





(11)Loss before taxation from continuing operations








(3,830
)




(5,108
)




(12,071)Income tax credit from continuing operations


17





183





1,188





1,710Loss after taxation from continuing operations








(3,647
)




(3,920
)




(10,361)Discontinued operationsProfit after taxation from discontinued operations


18











1,628





199Loss for the year








(3,647
)




(2,292
)




(10,162)Attributable to:Owners of the parent:Loss from continuing operations








(3,647
)




(3,920
)




(10,361)Profit from discontinued operations














1,608





129Loss for the year attributable to owners of the parent








(3,647
)




(2,312
)




(10,232)Non-controlling interests:Profit from discontinued operations


19











20





70Profit for the year attributable to non-controlling interests














20





70(3,647
)




(2,292
)




(10,162)Basic (loss)/earnings per shareContinuing operations


20(a)





(0.7c
)




(1.6c
)




(571.1c)Discontinued operations


20(a)











0.7c





7.1c(0.7c
)




(0.9c
)




(564.0c)Diluted (loss)/earnings per shareContinuing operations


20(b)





(0.7c
)




(1.6c
)




(571.1c)Discontinued operations


20(b)











0.7c





7.1c(0.7c
)




(0.9c
)




(564.0c)








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Notes





2012
 m




2011  m




2010  mLoss for the year








(3,647
)




(2,292
)




(10,162)Other comprehensive incomeContinuing operationsNet change in foreign currency translation reserves

46






34





(11
)




89Net change in cash flow hedges, net of tax

46






(162
)




(209
)




(41)Net change in fair value of available for sale securities, net of tax

46






1,295





112





(813)Net change in property revaluation reserve








(2
)










Net actuarial (losses)/gains in retirement benefit schemes, net of tax

12






(740
)




(464
)




1Share of other comprehensive income of associates, net of tax














4





(13)Other comprehensive income for the year, net of tax, from continuing operations








425





(568
)




(777)Discontinued operationsNet change in foreign currency translation reserves

46












(134
)




50Net change in cash flow hedges, net of tax

46












1





Net change in fair value of available for sale securities, net of tax

46












(74
)




3Share of other comprehensive income of associates, net of tax




















218Other comprehensive income for the year, net of tax, from discontinued operations














(207
)




271Total other comprehensive income for the year, net of tax








425





(775
)




(506)Total comprehensive income for the year








(3,222
)




(3,067
)




(10,668)Attributable to:Owners of the parent:Continuing operations








(3,222
)




(4,488
)




(11,138)Discontinued operations














1,409





385(3,222
)




(3,079
)




(10,753)Non-controlling interests:Discontinued operations














12





85Total comprehensive income for the year








(3,222
)




(3,067
)




(10,668)








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2012 |  | 






Notes






2012
 m


2011  mAssetsCash and balances at central banks


59







4,047



2,934Items in course of collection










192



202Disposal groups and non-current assets held for sale


25







562



1,422Trading portfolio financial assets


26







24



56Derivative financial instruments


27







2,835



3,046Loans and receivables to banks


28







2,914



5,718Loans and receivables to customers


29







72,972



82,540NAMA senior bonds


32







17,387



19,856Financial investments available for sale


33







16,344



15,389Interests in associated undertakings


34







52



50Intangible assets and goodwill


36







187



176Property, plant and equipment


37







333



360Other assets










239



491Current taxation










9



49Deferred taxation


38







3,860



3,692Prepayments and accrued income










559



670Total assets










122,516



136,651LiabilitiesDeposits by central banks and banks(1)


39







28,442



36,890Customer accounts


40







63,610



60,674Disposal groups held for sale


25











3Derivative financial instruments


27







3,256



3,843Debt securities in issue


41







10,666



15,654Current taxation










2



1Other liabilities


42







1,627



1,534Accruals and deferred income










1,260



1,103Retirement benefit liabilities


12







789



763Provisions for liabilities and commitments


43







352



514Subordinated liabilities and other capital instruments


44







1,271



1,209Total liabilities










111,275



122,188Shareholders equityShare capital


45







5,206



5,170Share premium


45







2,890



4,926Reserves










3,145



4,367Total shareholders equity










11,241



14,463Total liabilities and shareholders equity










122,516



136,651 (1)This includes  22,220 million of borrowings from central banks (2011:  31,133 million).








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| |  | Consolidated statement of cash flows for the year ended
31 December 2012 |  | LOGO






Notes



2012
 m


2011  m


2010  mReconciliation of loss before taxation to net cash outflow from operating activitiesLoss for the year from continuing operations before taxation






(3,830
)


(5,108
)


(12,071
)Adjustments for:Gain on redemption/remeasurement of subordinated liabilities and other capital instruments










(3,277
)


(372
)(Profit)/loss on disposal of businesses






(3
)


(38
)


11(Profit)/loss on disposal of property, plant and equipment

9 & 14




(2
)


1



(45
)Loss on disposal of financial assets






962



322



54Dividend income






(14
)


(5
)


(5
)Associated undertakings

34




(15
)


1



(18
)Impairment of associated undertakings

34




5



36



Provisions for impairment on loans and receivables

31




2,434



7,861



6,015(Profit)/loss on transfer on financial instruments held for sale to NAMA

8




(159
)


364



5,969Writeback of provisions/provisions for liabilities and commitments






9



(416
)


1,029Provisions for impairment on financial investments available for sale

13




86



283



74Change in other provisions






276



80



58Depreciation, amortisation and impairment






120



115



180Interest on subordinated liabilities and other capital instruments

3




223



168



382(Profit)/loss on disposal of financial investments available for sale

9




(31
)


28



(88
)Amortisation of premiums and discounts






(128
)


(60
)


(13
)Change in prepayments and accrued income






114



(11
)


(115
)Change in accruals and deferred income






153



71



(79
)200



415



966Change in deposits by central banks and banks






(8,456
)


(17,696
)


16,703Change in customer accounts(1)






2,654



(9,796
)


(22,908
)Change in loans and receivables to customers(2)






6,798



11,617



7,679Change in NAMA senior bonds






2,438



891



Change in loans and receivables to banks






265



1,869



353Change in trading portfolio financial assets/liabilities






33



(63
)


85Change in derivative financial instruments






(769
)


385



210Change in items in course of collection






13



76



(19
)Change in debt securities in issue






(4,996
)


(3,174
)


(15,728
)Change in notes in circulation






9



1



24Change in other assets






254



(212
)


109Change in other liabilities






(102
)


(87
)


(1,564
)Effect of exchange translation and other adjustments(3)






(258
)


(592
)


231Net cash outflow from operating assets and liabilities






(2,117
)


(16,781
)


(14,825
)Net cash outflow from operating activities before taxation






(1,917
)


(16,366
)


(13,859
)Taxation paid






42



15



(36
)Net cash outflow from operating activities






(1,875
)


(16,351
)


(13,895
)Investing activities(note a)






546



6,684



4,576Financing activities(note b)






(160
)


11,302



3,446Change in cash and cash equivalents






(1,489
)


1,635



(5,873
)Opening cash and cash equivalents






7,373



5,712



12,067Reclassified to disposal groups and non-current assets held for sale














(716
)Effect of exchange translation adjustments






42



26



234Closing cash and cash equivalents






5,926



7,373



5,712








221



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##### Table of Contents

|     |  |                                                                                      |  | 
|---- |  | ------------------------------------------------------------------------------------ |  | 
|LOGO |  | Consolidated statement of cash flows (continued)
for the year ended 31 December 2012 |  | 






Notes




2012
 m


2011  m


2010  m(a) Investing activitiesNet cash outflow on acquisition of business combinations


59









(3,420
)


Purchase of financial investments available for sale


33





(5,059
)


(1,760
)


(6,241)Proceeds from sales and maturity of financial investments available for sale


33





5,685



8,738



9,305Additions to property, plant and equipment


37





(37
)


(17
)


(25)Disposal of property, plant and equipment








3



2



87Additions to intangible assets


36





(71
)


(33
)


(23)Disposal of intangible assets
















1Disposal of investment in associated undertakings


18













1,467Disposal of investment in businesses and subsidiaries(4)








11



3,169



Dividends received from associated undertakings








14



5



5Cash flows from investing activities








546



6,684



4,576(b) Financing activitiesProceeds of issue of CCNs


44









1,600



Proceeds of issue of share capital to NPRFC


45









5,000



3,698Capital contributions from the Minister for Finance and the NPRFC


51









6,054



Redemption of subordinated liabilities and other capital instruments












(1,120
)


Cost of redemption of capital instruments


7









(9
)


(5)Interest paid on subordinated liabilities and other capital instruments








(160
)


(223
)


(247)Cash flows from financing activities








(160
)


11,302



3,446 (1)Includes deposits placed by the NTMA  1,127 million (2011:  27 million; 2010:  8 million). (2)Includes financial assets held for sale to NAMA and loans and receivables to
customers within disposal groups and non-current assets held for sale. (3)Included within the effect of exchange translation and other adjustments are
amounts in respect of pension contributions of  236 million (2011:  216 million; 2010:  375 million). In addition, included within this caption is a charge of  182 million in respect of past service costs relating to the early retirement scheme; a
credit of  29 million in respect of a curtailment gain for voluntary severance employees; and a credit of  151 million in respect of defined
benefits, all of which are non-cash movements. (4)Includes net proceeds on the
disposal of BZWBK (note 18) and proceeds on the disposal of businesses (note 15).








222



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##### Table of Contents

| |  |                                                                                 |  |     
| |  | ------------------------------------------------------------------------------- |  | ----
| |  | Consolidated statement of changes in equity for the year ended
31 December 2012 |  | LOGO






Attributable to equity holders of parentSharecapital




Sharepremium




Capitalreserves




Capitalredemptionreserves




Revaluationreserves




Availablefor salesecuritiesreserves m




 m




 m




 m




 m




 mAt 1 January 2012


5,170





4,926





2,885





3,958





26





(1,003)Loss for the year
































Other comprehensive income (note 46)


























(2
)




1,295Total comprehensive income for the year


























(2
)




1,295Capital contributions (note 49)














(247
)
















Reduction of capital (notes 45 and 50)








(2,000
)










(3,958
)










Ordinary shares issued in lieu of dividend (note 45)


36





(36
)






















Share based payments
































At 31 December 2012


5,206





2,890





2,638











24





292Attributable to equity holders of parentCash flowhedgingreserves




Revenuereserves




Foreigncurrencytranslationreserves




Treasuryshares




Sharebasedpaymentsreserves




Total m




 m




 m




 m




 m




 mAt 1 January 2012


229





(822
)




(467
)




(462
)




23





14,463Loss for the year








(3,647
)






















(3,647)Other comprehensive income (note 46)


(162
)




(740
)




34

















425Total comprehensive income for the year


(162
)




(4,387
)




34

















(3,222)Capital contributions (note 49)








247























Reduction of capital (notes 45 and 50)








5,958























Ordinary shares issued in lieu of dividend (note 45)
































Share based payments
































At 31 December 2012


67





996





(433
)




(462
)




23





11,241








223



---

##### Table of Contents

|     |  |                                                                                 |  | 
|---- |  | ------------------------------------------------------------------------------- |  | 
|LOGO |  | Consolidated statement of changes in equity for the year ended
31 December 2011 |  | 






Attributable to equity holders of parentSharecapital




Sharepremium




Otherequityinterests




Capitalreserves




Capitalredemptionreserves




Revaluationreserves




Availablefor salesecuritiesreserves m




 m




 m




 m




 m




 m




 mAt 1 January 2011




3,965





5,089





239





253











24





(1,044)Loss for the year








































Other comprehensive income








































41Total comprehensive income for the year








































41Capital contributions (notes 49 and 51)






















2,722

















Ordinary shares issued in lieu of dividend (note 45)




163





(163
)




























Issue of ordinary shares (note 45)




5,000



































Cancellation of deferred shares (notes 45 and 50)




(3,958
)






















3,958











Redemption of capital instruments (notes 7 and 48)
















(239
)






















Share based payments








































Extinguishment of non-controlling interests (note 52)








































Other movements






















(90
)(1)










2





At 31 December 2011




5,170





4,926











2,885





3,958





26





(1,003)  Attributable to equity holders of parentCash flowhedgingreserves




Revenuereserves




Foreigncurrencytranslationreserves




Treasuryshares




Sharebasedpaymentsreserves




Total




Non-controllinginterests




Total m




 m




 m




 m




 m




 m




 m




 mAt 1 January 2011


437





(4,545
)




(327
)




(462
)




30





3,659





690





4,349Loss for the year








(2,312
)






















(2,312)





20





(2,292)Other comprehensive income


(208
)




(460
)




(140
)
















(767)





(8
)




(775)Total comprehensive income for the year


(208
)




(2,772
)




(140
)
















(3,079)





12





(3,067)Capital contributions (notes 49 and 51)








6,054























8,776











8,776Ordinary shares issued in lieu of dividend (note 45)












































Issue of ordinary shares (note 45)
































5,000











5,000Cancellation of deferred shares (notes 45 and 50)












































Redemption of capital instruments (notes 7 and 48)








344























105





(189
)




(84)Share based payments








7

















(7
)
















Extinguishment of non-controlling interests (note 52)






































(513
)




(513)Other movements








90























2











2At 31 December 2011


229





(822
)




(467
)




(462
)




23





14,463











14,463 (1)See note 49.








224



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##### Table of Contents

| |  |                                   |  |     
| |  | --------------------------------- |  | ----
| |  | Notes to the financial statements |  | LOGO






Note 1
Segmental information 2
Interest and similar income 3
Interest expense and similar charges 4
Dividend income 5
Net fee and commission income 6
Net trading loss 7
Gain on redemption/remeasurement of subordinated liabilities and other capital instruments 8
Profit/(loss) on transfer of financial instruments to NAMA 9
Other operating (loss)/income 10
Administrative expenses 11
Share-based compensation schemes 12
Retirement benefits 13
Provisions for impairment on financial investments available for sale 14
Profit/(loss) on disposal of property 15
Profit/(loss) on disposal of businesses 16
Auditors fees 17
Taxation 18
Discontinued operations 19
Non-controlling interests in subsidiaries 20
(Loss)/earnings per share 21
Distributions on equity shares 22
Transfer of business from Anglo Irish Bank Corporation 23
Acquisition of EBS Limited (EBS) 24
Financial assets and financial liabilities held for sale to NAMA 25
Disposal groups and non-current assets held for sale 26
Trading portfolio financial assets 27
Derivative financial instruments 28
Loans and receivables to banks 29
Loans and receivables to customers 30
Amounts receivable under finance leases and hire purchase contracts 31
Provisions for impairment on loans and receivables 32
NAMA senior bonds 33
Financial investments available for sale 34
Interests in associated undertakings 35
Interest in Aviva Life Holdings Ireland Limited 36
Intangible assets and goodwill 37
Property, plant & equipment 38
Deferred taxation
 Note 39
Deposits by central banks and banks 40
Customer accounts 41
Debt securities in issue 42
Other liabilities 43
Provisions for liabilities and commitments 44
Subordinated liabilities and other capital instruments 45
Share capital 46
Analysis of selected other comprehensive income 47
Own shares 48
Other equity interests 49
Capital reserves 50
Capital redemption reserves 51
Contributions from the Minister for Finance and the NPRFC 52
Non-controlling interests in subsidiaries 53
Memorandum items: contingent liabilities and commitments, and contingent assets 54
Off-balance sheet arrangements 55
Transfer of financial assets 56
Fair value of financial instruments 57
Classification and measurement of financial assets and financial liabilities 58
Interest rate sensitivity 59
Statement of cash flows 60
Financial assets and financial liabilities by contractual residual maturity 61
Financial liabilities by undiscounted contractual maturity 62
Report on directors remuneration and interests 63
Related party transactions 64
Commitments 65
Employees 66
Regulatory compliance 67
Financial and other information 68
Average balance sheets and interest rates 69
Non-adjusting events after the reporting period 70
Dividends 71
Approval of financial statements








225



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##### Table of Contents

|     |  |                                   |  | 
|---- |  | --------------------------------- |  | 
|LOGO |  | Notes to the financial statements |  | 






1
Segmental information The segments mentioned below reflect the internal financial reporting structure which is
used by management to assess performance and allocate resources. The segments performance statements include income and direct costs relating to each segment
but exclude overheads which are held centrally in the Group segment. Exceptional items are shown separately. Funding and liquidity costs are based on actual wholesale funding costs incurred and a segments net funding requirement. Wholesale
funding costs include the Irish Governments Eligible Liabilities Guarantee (ELG) Scheme charges relating to wholesale funds. Net interest income also includes ELG charges directly attaching to customer deposits within a segment.
Income on capital is allocated to segments based on each segments capital requirement. Surplus capital is held in the Group segment. The cost of services between segments and from central support functions to segments is based on the estimated
actual cost incurred in providing the service. Personal & Business Banking (PBB)comprises banking operations for the personal segment
and small enterprises within the Republic of Ireland. The PBB segment also includes the Groups operations in the Channel Islands and the Isle of Man. Corporate, Institutional and Commercial Banking (CICB)comprises banking operations for mid-sized corporate and commercial enterprises. It also
includes a Corporate Finance business and a Treasury customer services area which delivers treasury services to customers of the Group. AIB UKcomprises
retail and commercial banking operations in Britain operating under the trading name Allied Irish Bank (GB) and in Northern Ireland operating under the trading name First Trust Bank. EBSwas acquired by AIB Group on 1 July 2011. The segment comprises banking operations for the personal segment within the Republic of Ireland. The segment
view is shown on a consistent basis to other segments which differs from the legal entity basis whereby EBS wholesale treasury operations are reported as part of the Group segment and assets identified as non-core are reported as part of Non-Core. Groupincludes wholesale treasury activities, unallocated costs of central services and income on capital not allocated to segments. Non-Corecomprises those assets which AIB is committed to deleveraging and losses on the transfer of loans to NAMA, together with related costs. This segmental information reflects the Groups operating loss before exceptional items, which are separately identified and not allocated to a segment. For 2011
and 2010, exceptional items which had been allocated to particular segments have now been represented on the same basis as 2012.








226



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##### Table of Contents

| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






1
Segmental information(continued)  2012PBB




CICB




AIB UK




EBS




Group




TotalCore




TotalNon-Core




Total m




 m




 m




 m




 m




 m




 m




 mOperations by business segmentsNet interest income




575





(88
)




102





62





368





1,019





87





1,106Other income/(loss)(1)




259





75





67





11





(37
)




375





(57
)




318Total operating income/(loss)




834





(13
)




169





73





331





1,394





30





1,424Personnel expenses




(420
)




(173
)




(108
)




(30
)




(216
)




(947
)




(66
)




(1,013
)General and administrative expenses




(217
)




(64
)




(86
)




(32
)




(167
)




(566
)




(41
)




(607
)Depreciation, impairment and amortisation




(55
)




(12
)




(11
)




(10
)




(31
)




(119
)










(119
)Total operating expenses




(692
)




(249
)




(205
)




(72
)




(414
)




(1,632
)




(107
)




(1,739
)Operating profit/(loss) before provisions




142





(262
)




(36
)




1





(83
)




(238
)




(77
)




(315
)Provisions for impairment on loans and receivables




(494
)




(916
)




(97
)




(237
)










(1,744
)




(690
)




(2,434
)Provisions for liabilities and commitments










(4
)






















(4
)




(5
)




(9
)Provisions for impairment on financial investments available for sale




























(84
)




(84
)




(2
)




(86
)Total provisions




(494
)




(920
)




(97
)




(237
)




(84
)




(1,832
)




(697
)




(2,529
)Group operating loss




(352
)




(1,182
)




(133
)




(236
)




(167
)




(2,070
)




(774
)




(2,844
)Associated undertakings




13











2

















15





(5
)




10Profit on disposal of property




























2





2











2Profit on disposal of businesses




1





























1





2





3Loss before exceptional items




(338)





(1,182
)




(131
)




(236
)




(165
)




(2,052
)




(777)





(2,829
)Loss on disposal of loans














































(962
)Profit on transfer of financial instruments to NAMA














































159Retirement benefit curtailment














































204Restructuring and restitution expenses














































(402
)Total exceptional items














































(1,001
)Loss before taxation














































(3,830
)








227



---

##### Table of Contents

|     |  |                                   |  | 
|---- |  | --------------------------------- |  | 
|LOGO |  | Notes to the financial statements |  | 






1
Segmental information(continued)  2011PBB




CICB




AIB UK




EBS




Group




TotalCore




TotalNon-




Total m




 m




 m




 m




 m




 m




Core m




 mOperations by business segmentsNet interest income




583





79





134





86





320





1,202





148





1,350Other income/(loss)(1)




263





85





70





5





(22
)




401





37





438Total operating income




846





164





204





91





298





1,603





185





1,788Personnel expenses




(441
)




(163
)




(126
)




(18
)




(117
)




(865
)




(70
)




(935)General and administrative expenses




(200
)




(86
)




(62
)




(19
)




(208
)




(575
)




(62
)




(637)Depreciation, impairment and amortisation




(57
)




(14
)




(7
)




(5
)




(30
)




(113
)




(2
)




(115)Total operating expenses




(698
)




(263
)




(195
)




(42
)




(355
)




(1,553
)




(134
)




(1,687)Operating profit/(loss) before provisions




148





(99
)




9





49





(57
)




50





51





101Provisions for impairment on loans and receivables




(1,177
)




(2,933
)




(225
)




(201
)










(4,536
)




(3,325
)




(7,861)Provisions for liabilities and commitments




























(11
)




(11
)




(6
)




(17)Provisions for impairment on financial investments available for sale




(2
)




(5
)
















(270
)




(277
)




(6
)




(283)Total provisions




(1,179
)




(2,938
)




(225
)




(201
)




(281
)




(4,824
)




(3,337
)




(8,161)Group operating loss




(1,031
)




(3,037
)




(216
)




(152
)




(338
)




(4,774
)




(3,286
)




(8,060)Associated undertakings




(39
)










2

















(37
)










(37)Loss on disposal of property




(1
)




























(1
)










(1)Profit on disposal of businesses




10























28





38











38Loss from continuing operations before exceptional items




(1,061
)




(3,037
)




(214
)




(152
)




(310
)




(4,774
)




(3,286
)




(8,060
)Loss on disposal of loans














































(322
)Loss on transfer of financial instruments to NAMA














































(364
)Gain on redemption/remeasurement of subordinated debt and other capital instruments














































3,277Interest rate hedge volatility














































(39
)Restructuring and restitution expenses














































(33
)Writeback of provisions for NAMA loans














































433Total exceptional items














































2,952Loss before taxation from continuing operations














































(5,108
)








228



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##### Table of Contents

| |  |  |  |     
| |  |  |  | ----
| |  |  |  | LOGO






1
Segmental information(continued)  2010PBB




CICB




AIB UK




Group




TotalCore




TotalNon-




Total m




 m




 m




 m




 m




Core m




 mOperations by business segmentsNet interest income




719





168





229





494





1,610





234





1,844Other income/(loss)(1)




297





73





90





(112
)




348





115





463Total operating income




1,016





241





319





382





1,958





349





2,307Personnel expenses




(443
)




(144
)




(138
)




(94
)




(819
)




(102
)




(921)General and administrative expenses




(175
)




(79
)




(45
)




(157
)




(456
)




(72
)




(528)Depreciation, impairment and amortisation




(65
)




(13
)




(10
)




(90
)




(178
)




(2
)




(180)Total operating expenses




(683
)




(236
)




(193
)




(341
)




(1,453
)




(176
)




(1,629)Operating profit before provisions




333





5





126





41





505





173





678Provisions for impairment on loans and receivables




(736
)




(1,557
)




(121
)










(2,414
)




(3,601
)




(6,015)Provisions for liabilities and commitments








































Provisions for impairment on financial investments available for sale




(2
)




(7
)










(54
)




(63
)




(11
)




(74)Total provisions




(738
)




(1,564
)




(121
)




(54
)




(2,477
)




(3,612
)




(6,089)Group operating (loss)/profit




(405
)




(1,559
)




5





(13
)




(1,972
)




(3,439
)




(5,411)Associated undertakings




16











2











18











18Profit on disposal of property






















46





46











46Loss on disposal of businesses






















(11
)




(11
)










(11)(Loss)/profit from continuing - operations before exceptional items




(389
)




(1,559
)




7





22





(1,919
)




(3,439
)




(5,358)Loss on disposal of loans








































(54)Loss on transfer of financial instruments to NAMA








































(5,969)Gain on redemption of subordinated debt and other capital instruments








































372Interest rate hedge volatility








































(13)Restructuring and restitution expenses








































(20)Provisions for NAMA loans








































(1,029)Total exceptional items








































(6,713)Loss before taxation from continuing operations








































(12,071) (1)Gain on redemption of subordinated liabilities
and other capital instruments of Nil (2011:  3,277 million; 2010:  372 million) is recorded within the Group
segment (note 7).








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1
Segmental information(continued) Other amounts - statement of financial position  2012PBB


CICB


AIB UK


EBS


Group


Total
Core


TotalNon-


Total m


 m


 m


 m


 m


 m


Core
 m


 mLoans and receivables to customers


26,794



16,290



8,341



12,322







63,747



9,225



72,972Loans and receivables held for sale


























353



353Interests in associated undertakings


25







12











37



15



52Total assets


29,265



16,500



13,174



12,399



41,291



112,629



9,887



122,516Customer accounts


26,949



14,541



10,864



10,117



1,111



63,582



28



63,610Total liabilities(1)


31,676



14,680



12,273



10,460



42,026



111,115



160



111,275Capital expenditure


57



2



4



3



35



101



7



1082011PBB


CICB


AIB UK


EBS


Group


TotalCore


TotalNon-


Total m


 m


 m


 m


 m


 m


Core m


 mLoans and receivables to customers


27,013



19,638



8,998



13,101







68,750



13,790



82,540Loans and receivables held for sale


























1,191



1,191Interests in associated undertakings


24







12











36



14



50Total assets


31,198



19,769



13,398



13,682



43,458



121,505



15,146



136,651Customer accounts


28,150



13,801



10,220



8,476







60,647



27



60,674Total liabilities(1)


32,234



14,019



11,399



8,817



55,420



121,889



299



122,188Capital expenditure


49



1















50







50








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1
Segmental information(continued)  2012Republic of


United


North


Rest of the


TotalGeographic information(2)(3)

Ireland
 m


Kingdom m


America m


world
 m


 mNet interest income


934



174



(2
)






1,106Other income/(loss)(4)(5)


(716
)


309



(70
)


(8
)


(485)Non-current assets(6)


489



30



1







5202011Republic of


United


North


Rest of the


TotalIreland


Kingdom


America


worldGeographic information(2)(3)

 m


 m


 m


 m


 mNet interest income


1,131



199



18



2



1,350Other income/(loss)(4)(5)


3,347



(315)



(17
)


(25
)


2,990Non-current assets(6)


493



41



2







5362010Republic of


United


North


Rest of the


TotalIreland


Kingdom


America


worldGeographic information(2)(3)

 m


 m


 m


 m


 mNet interest income


1,397



390



49



8



1,844Other (loss)/income(4)(5)


(5,091
)


(169)



43



16



(5,201)Non-current assets(6)


491



47



2



1



541 Revenue from external customers comprises interest income (note 2); fee income (note 5) and trading loss (note 6). (1)The fungible nature of liabilities within the banking industry inevitably leads
to allocations of liabilities to segments, some of which are necessarily subjective. Accordingly, the directors believe that the analysis of total assets is more meaningful than the analysis of liabilities. (2)The geographical distribution of net interest and other income/(loss) is based
primarily on the location of the office recording the transaction. (3)For
details of significant geographic concentrations, see 3.1 Credit risk. (4)Loss
on disposal of financial assets to NAMA is recorded within the Republic of Ireland and United Kingdom. (5)Gain on redemption of subordinated liabilities and other capital instruments is recorded in Republic of Ireland. (6)Non-current assets comprise intangible assets and goodwill, and property, plant
and equipment.








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2  Interest and similar income

2012 m


2011 m


2010   mInterest on loans and receivables to customers


2,976



3,418



3,837Interest on loans and receivables to banks


31



69



55Interest on trading portfolio financial assets


1



2



2Interest on NAMA senior bonds


329



348



29Interest on financial investments available for sale


579



592



6863,916



4,429



4,609 Interest income includes a credit of 
217 million (2011: credit of  199 million; 2010: credit of  526 million) removed from other comprehensive income in respect of cash flow hedges. Total interest income calculated using the effective interest method reported above that relates to financial assets not carried at fair value through profit or loss is  3,915 million (2011:  4,427; 2010:  4,607 million). Interest income includes a credit of  392 million (2011:  236 million; 2010:  277 million) in respect of the discount unwind on impaired loans.  3  Interest expense and similar charges

2012 m


2011 m


2010   mInterest on deposits by central banks and banks


252



600



375Interest on customer accounts


1,823



1,700



1,313Interest on debt securities in issue


512



611



695Interest on subordinated liabilities and other capital instruments


223



168



3822,810



3,079



2,765 Interest expense includes a charge of 
128 million (2011: charge of  66 million; 2010: charge of  135 million) removed from other comprehensive income in respect of cash flow hedges. Included within interest expense is  388 million (2011:  488 million; 2010:  306 million) in respect of the Irish Governments Eligible Liabilities Guarantee (ELG) Scheme. Total interest expense calculated using the effective interest method reported above that relates to financial liabilities not carried at fair value through profit or
loss is  2,810 million (2011:  3,079 million; 2010:  2,765
million).  4
Dividend income Dividend income relates to income from equity shares held as financial investments available for
sale and amounts to  1 million (2011:  4 million; 2010:
 1 million).  5  Net fee and commission income



2012 m




2011 m




2010 mRetail banking customer fees




321





336





367Credit related fees




33





50





94Asset management and investment banking fees




14





58





81Brokerage fees
















18Insurance commissions




28





26





25Fee and commission income




396





470





585Irish Government Guarantee Scheme expense(1)
















(51
)Other fee and commission expense(2)




(29
)




(29
)




(37
)Fee and commission expense




(29
)




(29
)




(88
)367





441





497 (1)Represents the charge in respect of the Credit
Institutions (Financial Support) (CIFS) Scheme which expired in 2010. (2)Other fee and commission expense includes ATM expenses of  8 million (2011:  12 million; 2010:  14 million) and credit card
commissions of  12 million (2011:  11 million; 2010:  11 million).








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6  Net trading loss

2012 m


2011 m


2010  mForeign exchange contracts


45



52



22Debt securities and interest rate contracts


(75
)


(91
)


(183)Credit derivative contracts


(38
)


(71
)


(41)Equity securities and index contracts(1)


(32
)


(3
)


1(100
)


(113
)


(201) (1)The mark to market loss on put options, held by
AIB and Aviva for the sales of ALH and Ark Life respectively, amounted to  32 million (2011:  8 million)
(note 35). The total hedging ineffectiveness on cash flow hedges reflected in the income statement amounted to a charge of  7 million (2011: charge of  3 million; 2010: charge of  2
million) and is included in net trading loss.  7
Gain on redemption/remeasurement of subordinated liabilities and other capital instruments 2012 There were no redemptions of subordinated liabilities or other capital instruments in 2012. 2011 The Group was involved in a number of initiatives to increase its core
tier 1 capital from 2009 onwards. In this regard, in January and June 2011, the Group completed offers to purchase for cash certain capital instruments. In addition, the date for settlement of three further instruments was 22 July 2011. These
offers to purchase for cash, accounted for under IAS 39, met the requirements to be treated as an extinguishment of the original instruments. January This transaction comprised a tender offer by AIB for cash for certain of its tier 2 capital instruments denominated in various currencies. These instruments
were purchased at 30% of their face value. It resulted in a total gain of  1,534 million (
1,534 million after taxation) all of which was recorded in the income statement. June On 14 April 2011, the High Court issued a Subordinated Liabilities Order under section 29 of the Credit Institutions (Stabilisation) Act 2010 (the SLO),
with the consent of AIB. The SLO changed the terms of all outstanding instruments resulting in a gain for AIB. On 13 May 2011, AIB launched a tender offer for
cash for all its outstanding subordinated liabilities and other capital instruments. Under this offer, AIB agreed to purchase the instruments at 10% to 25% of their face value. Following completion of the offer and where a certain percentage (a
quorum) of the holders agreed to accept the offer, AIB had an option to redeem or purchase all of the remaining outstanding instruments at an option price of 0.001% of the nominal amount, which it exercised. In relation to instruments settled on or before 30 June 2011 a gain amounting to
 1,343 million ( 1,312 million after taxation) was recognised in the income statement and a gain
amounting to  387 million ( 344 million after taxation) was recognised directly in equity. At 30 June 2011, balances remained outstanding on six instruments. Since the terms of these instruments changed arising from the SLO which was effective from
22 April 2011, the original liabilities were derecognised and new liabilities recognised, with their remeasurement based on fair value. A gain of 
396 million arising on derecognition of the original liabilities/initial recognition of the new liabilities was recognised in the income statement. Three of the remaining instruments were settled on 22 July 2011. The subordinated liabilities and other capital instruments of the Group are set out in note 44. Both the RCI and the LPI were redeemed in full during 2011.








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7
Gain on redemption/remeasurement of subordinated liabilities and other capital instruments(continued) The table below sets out the gain on redemption/remeasurement of subordinated liabilities and other capital instruments in the year to 31 December 2011.  2011Redemption




Remeasurement




Total m





 m





 mCarrying value of subordinated liabilities and other capital instruments at redemption/remeasurement




4,286





108





4,394Carrying value of other equity interests and non-controlling interests at redemption




428











4284,714





108





4,822Consideration paid on redemption of subordinated liabilities and other capital instruments




(1,079
)










(1,079
)Consideration paid on redemption of other equity interests and non-controlling interests




(41
)










(41
)Costs




(9
)










(9
)Fair value on remeasurement of subordinated liabilities and other capital instruments










(29
)




(29
)(1,129
)




(29
)




(1,158
)Gain on redemption/remeasurement




3,585





79





3,664Of which recognised in:Income statement
















3,277
(1)Equity
















387
(2)3,664 (1) 3,246 million after taxation. (2) 344 million after taxation. On 29 March 2010, the
Group completed the exchange of lower tier 2 capital instruments for new lower tier 2 capital qualifying securities. This exchange of debt, accounted for under IAS 39, met the requirements to be treated as an extinguishment of the original
instruments. However, since the original instruments were extinguished by the issue of new subordinated capital instruments, this was a non-cash transaction except for the costs incurred in issuing the new instruments. The following table sets out the carrying value, the consideration given including costs, and the gain on exchange:  2010  mCarrying value of instruments exchanged


2,212Carrying value of new instruments issued including costs


(1,840)Gain on exchange of subordinated liabilities


372 These instruments were exchanged at discounts ranging from 9% to 26%. The gain of  372 million ( 372 million after taxation) was recorded in the income statement.








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8 Profit/(loss) on transfer of financial instruments to NAMA Following the enactment of the NAMA Act (the Act) in November 2009 and the designation of AIB as a participating institution under the Act in February 2010,
financial instruments transferred to NAMA during 2010 and 2011. The consideration received was in the form of Government Guaranteed Floating Rate Notes (senior bonds) and Floating Rate Perpetual Subordinated Bonds (subordinated bonds) issued by NAMA
which were initially measured at fair value (note 56). Whilst these transfers were practically complete at 31 December 2011, a provision was made in respect of
adjustments to transfers which had not settled at that date (note 43). The following table sets out details of the profit/loss arising in 2012, 2011 and 2010:  2012Net carrying
value  m


Fair value of
consideration  m



Profit on
transfer
 mAdjustment to previous transfersFinancial instruments returned by NAMA


44


(21)



23Other adjustments to transfers(1)









136Total









159 (1)During 2012, NAMA resolved certain issues in
relation to loans and receivables which had transferred during 2010 and 2011. This resulted in the release of provisions amounting to  155 million
which were offset by a charge of  19 million for Section 93 claims under the NAMA Act.  2011Net carryingvalue
 m




Fair value of
consideration  m




Loss on
transfer  mTransfers to NAMA


(1,232
)




783





(449
)Adjustments to 2011 transfers


(55
)




(83
)




(138
)(1,287
)




700





(587
)Utilisation of provision for liabilities and charges














587Writeback of provision for servicing liability














43Adjustment to 2010 transfersFinancial instruments returned by NAMA


40





(27
)




13Adjustments to 2010 transfers


(179
)




(257
)




(436
)(139
)




(284
)




(423
)EBS transfers to NAMA


(36
)




35





(1
)Adjustments to EBS 2010 transfers








17





17(36
)




52





16Total














(364
)2010Net carryingvalue
 m




Fair value of
consideration  m




Loss on
transfer  mTransfers to NAMA


(14,010
)




8,084





(5,926
)Provision for servicing liability














(43
)Total














(5,969
)








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8
Profit/(loss) on transfer of financial instruments to NAMA(continued) The following table
analyses the overall impact of financial instruments, both transferred and held for sale to NAMA(1) in the consolidated income statement:  2012 m


2011 m


2010 mIncluded withinProfit/(loss) on transfer of financial instruments to NAMA


159



(364
)


(5,969
)Administrative expenses (note 10)


(3
)


(28
)


(21
)Provisions for impairment of loans and receivables






(87
)


(1,497
)Provisions for liabilities and commitments(2)










(1,029
)Release of surplus provision






433



156



(46
)


(8,516
) (1)Excludes amounts relating to interest income,
related funding and other income on the underlying financial instruments. (2)At
31 December 2010, the transfer in 2011 of certain loans to NAMA was deemed to be unavoidable, accordingly a provision was made for the expected discount based on the loans identified for transfer and the haircut that NAMA had communicated would
be applied to such loans (note 43). Adjustments to transfers have been settled either through cash settlements, a return or issue of NAMA senior and subordinated
bonds, or the creation of a receivable or a NAMA provision.  9  Other operating (loss)/income

2012 m


2011 m


2010 mLoss on disposal of loans and receivables to customers(1)


(962
)


(322
)


(54)Profit/(loss) on disposal of available for sale debt securities


25



(36
)


75Profit on disposal of available for sale equity securities


6



8



13Miscellaneous operating income(2)


19



95



65(912
)


(255
)


99 (1)Loss on disposal of loans and receivables to
customers includes the impact of deleveraging non-core assets of  532 million (2011: loss  322 million)
and a loss of  430 million arising on the transfer of loans at fair value to an SPV, now controlled by the pension scheme (note 12). (2)Miscellaneous operating income includes:  

Foreign exchange gains and losses Nil (2011: credit of  40 million; 2010: credit of
 8 million).  

Loss on disposal of equipment Nil (2011: Nil; 2010: loss of  1 million).  

Legal proceedings Nil (2011: credit of  61 million; 2010: Nil).  

 2 million charge relating to terminated cash flow hedges which has been removed from equity (2011: charge of  18 million; 2010: credit of  12 million).








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10 Administrative expenses





2012 m




2011 m




2010 mPersonnel expenses:Wages & salaries






786





757





722Termination benefits(1)






300











Retirement benefits(2)(note 12)






(130
)




48





92Social security costs






85





80





74Other personnel expenses






68





50





331,109





935





921General and administrative expenses(3)






708





670





5481,817





1,605





1,469 (1)On 21 May 2012, AIB announced the specific
terms of a voluntary severance programme which includes both an early retirement scheme and a voluntary severance scheme. At 31 December 2012, a charge of
 293 million has been made to the income statement in respect of termination benefits arising from the voluntary severance programme. This amount
comprises  182 million in respect of past service costs relating to the early retirement scheme and  140 million relating to the voluntary severance
scheme (notes 12 and 43) and a credit of  29 million in respect of a pension curtailment gain for voluntary severance employees. In addition, a provision of
 7 million has been made in respect of other termination benefits, principally, in the Isle of Man/Channel Islands. (2)Comprises a credit of  151 million relating to defined benefit expense (2011: charge of  29 million; 2010: charge of  72 million),
a defined contribution expense charge of  13 million (2011:  12 million; 2010:  13 million) and a long term
disability payments expense charge of  8 million (2011:  7 million; 2010:  7 million) (note 12). (3)Includes external costs relating to the transfer of financial instruments to NAMA
that amounted to  3 million (2011:  28 million; 2010:  21
million). Employee numbers by market segment are set out in note 65. 11  Share-based compensation schemes The Group operates a number of
share-based compensation schemes as outlined in this note on terms approved by the shareholders. The share-based compensation schemes which AIB Group operates in
respect of ordinary shares in Allied Irish Banks, p.l.c., are: (i) The AIB Group Share Option Scheme; (ii) Employees Profit Sharing Schemes; (iii) AIB
Save As You Earn (SAYE) Share Option Scheme UK; and (iv) AIB Group Performance Share Plan 2005. At 31 December 2012, the ordinary shares of Allied Irish Banks, p.l.c. were trading at
 0.05 per share, accordingly, there is no expectation that outstanding options will be exercised. (i) AIB Group Share Option Scheme The following disclosures regarding the
AIB Group Share Option Scheme (the 2000 Scheme) relate to both AIB Group and to Allied Irish Banks, p.l.c Options were last granted under this scheme in 2005, and these options vested in 2008 based on the 2007 earnings
per share out-turn, and are exercisable up to 2015, however, as these options are deeply out of the money, there is no expectation that they will be exercised. The
following table summarises the share option scheme activity over each of the years ended 31 December 2012, 2011 and 2010.  2012




2011




2010Numberofoptions



Weightedaverageexerciseprice





Numberof
options



Weightedaverageexerciseprice





Numberof
options



Weightedaverageexerciseprice000









000









000



Outstanding at 1 January


8,353.7



13.62





10,910.0



13.27





11,048.6



13.28Exercised


























Forfeited/lapsed


(2,607.2
)


13.58





(2,556.3
)


12.13





(138.6
)


13.77Outstanding at 31 December


5,746.5



13.64





8,353.7



13.62





10,910.0



13.27Exercisable at 31 December


5,746.5



13.64





8,353.7



13.62





10,910.0



13.27








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11  Share-based compensation schemes(continued) (ii) Employees Profit Sharing Schemes The Company operates the
AIB Approved Employees Profit Sharing Scheme 1998(the Scheme) on terms approved by the shareholders at the 1998 Annual General Meeting. All employees, including executive directors of the Company and certain
subsidiaries are eligible to participate, subject to minimum service periods and being in employment on the date on which an invitation to participate is issued. The Directors, at their discretion, may set aside each year, for distribution under the
Scheme, a sum not exceeding 5% of eligible profits of participating companies. No shares have been awarded under this Scheme since 2008. A Share Ownership Plan(the Plan) operates in the UK in place of a profit sharing scheme whereby employees may be awarded free shares. When the Plan was set up in 2002, it was on the basis that it would operate for a maximum period of 10 years. As this 10
year period has now come to an end, no further share awards or purchases can be made under the Plan. No shares have been awarded since 2008 under the Free Share category. The following table summarises activity in the Free Share category during 2012, 2011 and 2010.  2012


2011

2010Number
of shares 000



Number
of shares
000

Number
of shares
000Outstanding at 1 January


464.1


725.1

992.0Granted







Forfeited





(1.6)

(8.1)Vested


(269.0)


(259.4)

(258.8)Outstanding at 31 December


195.1


464.1

725.1 (iii) AIB Save As You Earn (SAYE) Share Option Scheme UK The Company operated a Save As You Earn Share Option Scheme(the Scheme) in the UK. The Scheme was open to all employees of AIB Group in the UK who had
completed six months continuous service at the date of grant. Options were last granted under this scheme in 2008. The following table summarises activity during
2012, 2011 and 2010 for the SAYE Share Option Scheme UK.  2012




2011




2010Numberofoptions



Weightedaverageexerciseprice





Numberofoptions



Weightedaverageexerciseprice





Numberofoptions



Weightedaverageexerciseprice000









000









000



Outstanding at 1 January


0.4



10.13





18.3



10.84





35.3



15.58Granted


























Forfeited/lapsed


(0.4
)


10.13





(17.9
)


10.52





(17.0
)


14.69Exercised


























Outstanding at 31 December












0.4



10.13





18.3



10.84Exercisable at 31 December












0.4



10.13





1.7



17.93 (iv) AIB Group Performance Share Plan 2005 This Plan was approved by the shareholders at the 2005 AGM. Conditional grants of awards of ordinary shares are made to employees. There were no conditional grants
outstanding at the end of December 2011 and there were no awards of performance shares in 2012. Income statement expense The total expense arising from share-based payment transactions amounted to Nil for the year ended 31 December 2012 (2011: Nil; 2010: Nil). Limitations on share-based payment schemes The Company complies with
guidelines issued by the Irish Association of Investment Managers in relation to shares of Allied Irish Banks, p.l.c. issued under the above schemes.








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12  Retirement benefits The Group operates a number of pension and retirement benefit schemes for employees, the majority of which are funded. These include both defined benefit and defined
contribution schemes. The hybrid scheme includes elements of a defined benefit scheme and a defined contribution scheme. Defined benefit schemes Of the defined benefit schemes operated by the Group, the most significant are the AIB Group Irish Pension Scheme (the Irish scheme) and the AIB Group UK
Pension Scheme (the UK scheme). The Irish scheme and the UK Scheme were closed to new members from December 1997. Staff joining the Group in the
Republic of Ireland between December 1997 and December 2007 became members of the Irish Defined Contribution (DC) scheme. A hybrid pension arrangement was introduced in Ireland in December 2007 and members of the Irish DC scheme had the
option at that time to switch to the hybrid pension arrangement. Staff joining the Group in the Republic of Ireland after December 2007 automatically join the
hybrid pension arrangement. At the year end, the Irish scheme has approximately 10,300 active members, 3,800 deferred members and 3,500 pensioners. Of the active
members of the Irish scheme, c. 3,000 are non-hybrid scheme members and c. 7,300 are hybrid scheme members. Also, in the Republic of Ireland, there are three EBS schemes with a total membership of 534 active members, 420 deferred members and 57
pensioners. 50 per cent. of staff in the UK are active members of the UK scheme. Retirement benefits for the defined benefit schemes are calculated by reference to service and pensionable salary averaged over the final five years (EBS scheme:
pensionable salary in final year), subject to certain conditions. Voluntary Severance Programme On 21 May 2012, the Group announced the specific terms of a voluntary severance programme which included an early retirement scheme. During 2012, 976 employees left
AIB under the Groups Irish early retirement scheme, and approximately 160 Irish early retirements are expected in 2013. The Group has recognised a past service cost in the income statement and an increase in the benefit obligation of  146 million (31 December 2011: Nil) for the Groups Irish early retirement scheme. In addition, 294 employees left under the Groups UK early retirement scheme and approximately 38 UK early retirements are expected in 2013. The Group has
recognised a past service cost in the income statement and an increase in the benefit obligation of  36 million (31 December 2011: Nil) in respect of
the Groups UK early retirement scheme. During 2012, there were 380 leavers from the Irish scheme under the Groups voluntary severance scheme, with
further voluntary severances expected for 2013. These have led to the recognition of a curtailment gain of  29 million in the income statement. Pay and Benefits Review The Group announced a Pay and Benefits review
on 14 June 2012. The main proposed change is the closure of all defined benefit pension schemes to future accrual and the transfer of all employees who are currently members of a defined benefit pension scheme (including hybrid arrangements) to
a DC pension scheme. This change will have no impact on the benefits accrued up to the date of transfer. The impact of this proposed closure of the defined benefit schemes to future accrual has not been recognised as this change had not occurred by
31 December 2012 and was still subject to discussions with relevant parties. Under the Pay and Benefits review, the payment of retirees club
subscriptions and the provision of a preferential interest rate on retirees and future retirees deposit accounts ceased. The liability of 
24 million previously recognised for these benefits was released to the income statement. In 2011, the Group decided to no longer pay club subscriptions for future retirees. Accordingly, the liability of
 26 million previously recognised for this benefit was credited to the income statement as a curtailment gain in 2011. In 2012, the Group affirmed its approach to the funding of the Irish pension scheme. This led to a reduction of the defined benefit obligation of  204 million and a credit to the income statement as a negative past service cost.








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12  Retirement benefits(continued) Contributions The Irish scheme is funded by a contribution rate of
16.0 per cent. of pensionable salaries with effect from 1 January 2011. Members of the Irish scheme contribute 5 per cent. of pensionable salary except for those who do not contribute in return for lower benefits. On 31 July 2012, AIB entered into a Contribution Deed with the Trustee of the Irish scheme whereby it agreed to make contributions to the scheme to enable the
Trustee ensure that the regulatory Minimum Funding Standard position of non-pensioner members of the Pension scheme was not affected by the agreed early retirement scheme. These contributions, amounting to  594 million, were settled through the transfer to the Irish scheme of interests in an SPV owning loans and receivables previously transferred at fair value from the Group. During 2012, AIB also transferred  115 million into the Irish scheme
to fund the Irish early retirement scheme as part of AIBs voluntary severance/early retirement cost saving initiative. In addition, AIB transferred  25 million into the UK scheme to fund the UK
early retirement scheme. The UK scheme is funded by a contribution rate of 30.8 per cent. of pensionable salaries together with quarterly payments of
Stg£ 9.7 million from 1 April 2016 increasing to Stg£ 12.6 million by 1 April 2024. A payment of Stg£ 50.8 million was paid into the UK scheme in December 2010 and a further Stg£ 102 million was
paid in January 2011. Those sums are part of a schedule of contributions agreed between the Group and the Trustees and accepted by the Pensions Regulator in the United Kingdom. Members of the UK scheme contribute 5 per cent. of pensionable
salary except for those who do not contribute in return for lower benefits. The total contributions to all defined benefit pension schemes operated by the Group in
2013 is estimated to be  215 million. As already stated, the Group is planning to close the defined benefit pension schemes to future accrual. However, as
the date of closure to future accrual is uncertain, included in the estimate is an amount based on the assumption that the defined benefit pension schemes will remain open for the full year 2013. Approval was received from the Pensions Board in 2013
in relation to a funding plan with regard to regulatory Minimum Funding Standard requirements of the Irish scheme. Pension Levy The Irish Finance (No 2) Act 2011, which was signed into law in June 2011, imposed an annual levy of 0.6% on the market value of assets under management in Irish pension
schemes, for the years 2011 to 2014 (inclusive). A levy of  16 million (2011:  16 million) was paid in
respect of Irish defined benefit schemes. A levy of  2 million (2011:  2 million) was paid in respect of Irish defined contribution schemes. The payment
of the levy in respect of Irish defined benefit schemes was incorporated into the expected return on pension scheme assets for 2012. In 2011, the payment of the levy was included as part of the actuarial loss on assets. Valuations Independent actuarial valuations for the main Irish and UK
schemes are carried out on a triennial basis by the Schemes actuary, Mercer. The last such valuations were carried out as at 30 June 2009 using Projected Unit Methods. The Irish scheme and the UK scheme are due to finalise actuarial
valuations as at 30 June 2012 and 31 December 2011 respectively by 31 March 2013. Actuarial valuations are available for inspection by the members of the schemes. Change in estimate During the year, the Group, with input from its
actuary, refined its estimate of the discount rate used for the computation of the defined benefit liabilities. The refinement included a significant extension of the bond data included in the population from which the discount rate is derived, as
well as a refinement of the approach used to extrapolate the available bond data out to the duration of the pension scheme obligations. The discount rate for euro
schemes for 2011 would have been 4.9% under the refined methodology, a decrease of 0.2%. This change in discount rate at 31 December 2011, would have resulted in an increase in the present value of the euro schemes liabilities of  126 million.








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12  Retirement benefits(continued) Financial assumptions The following table summarises the financial
assumptions adopted in the preparation of these financial statements in respect of the main schemes at 31 December 2012 and 2011. The assumptions, including the expected long-term rate of return on assets, have been set based upon the advice of
the Groups actuary.  Financial assumptions

2012
%


2011
%Irish schemeRate of increase in salaries(1)


3.00



3.20Rate of increase of pensions in payment(2)


1.60



2.00Expected return on scheme assets


4.49



5.92Discount rate


4.00



5.10Inflation assumptions


2.00



2.00UK schemeRate of increase in salaries(1)


2.90



3.60Rate of increase of pensions in payment


2.90



3.00Expected return on scheme assets


4.90



5.20Discount rate


4.50



4.70Inflation assumptions (RPI)


2.90



3.00Other schemesRate of increase in salaries


3.0  3.5



3.2  3.6Rate of increase of pensions in payment


0.0  3.0



0.0  3.0Expected return on scheme assets


3.7  7.5



5.5  8.0Discount rate


4.0  4.5



4.7  5.6Inflation assumptions


2.0  2.9



2.0  3.0 (1)The rate of increase in salaries includes the
impact of salary scale improvements. (2)Nil for the next 5 years and
2% per annum thereafter. Mortality assumptions The life
expectancies underlying the value of the scheme liabilities for the Irish and UK schemes at 31 December 2012 and 2011 are shown in the following table:  Life expectancy - yearsIrish scheme



UK scheme2012



2011



2012



2011Retiring today age 63Males



25.2



22.5



26.2



24.6Females



26.7



25.6



28.4



26.9Retiring in 10 years at age 63Males



26.6



25.5



27.3



25.7Females



27.8



28.6



29.6



28.2 The mortality assumptions for the Irish and UK schemes were updated in 2012. The table shows that a member of the Irish scheme retiring
at age 63 on 31 December 2012 is assumed to live on average for 25.2 years for a male (26.2 years for the UK scheme) and 26.7 years for a female (28.4 years for the UK scheme). There will be variation between members but these assumptions are
expected to be appropriate for all members. The table also shows the life expectancy for members aged 53 on 31 December 2012 who will retire in ten years. Younger members are expected to live longer in retirement than those retiring now,
reflecting a decrease in mortality rates in future years due to advances in medical science and improvements in standards of living.








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12  Retirement benefits(continued) Sensitivity analysis for principal assumptions used to measure scheme liabilities There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the pension schemes. Set out in the table below
is a sensitivity analysis for the key assumptions for the Irish scheme and the UK scheme. Note that the changes in assumptions are independent of each other i.e.
the effect of the reflected change in the discount rate assumes that there has been no change in the rate of mortality assumption and vice versa.  Assumption

Change in assumption

Impact on scheme liabilities(1)Irish scheme


UK schemeInflation

Increase by 0.25%


Increase by 2.7%


Increase by 4.7%Salary growth

Increase by 0.25%


Increase by 1.3%


Increase by 1.2%Discount rate

Increase by 0.25%


Decrease by 4.7%


Decrease by 5.5%Rate of mortality

Increase life expectancy by 1 year


Increase by 2.5%


Increase by 2.9% (1)Scheme liabilities: Irish scheme  4,165 million, UK scheme  1,140 million. Fair value of scheme assets The following table sets out on a combined
basis for all schemes, the fair value of the assets held by the schemes together with the long-term rate of return expected for each class of asset for the Group. The expected rates of return on individual asset classes are estimated using current
and projected economic and market factors at the measurement date in consultation with the Groups actuaries. Under IAS 19 Employee Benefits(revised),
which the Group will adopt from 1 January 2013, the expected return on assets is replaced with an interest cost on assets which is set equal to the discount rate at the measurement date.  2012




2011Long termrate of returnexpected


Value


Schemeassets




Long termrate of returnexpected


Value


Schemeassets%



 m



%





%



 m


%Equities


6.1



2,156



46





7.0



2,325


62Bonds


3.0



1,543



32





3.1



1,035


27Mortgage portfolio


5.0



570



12












Property


5.6



204



4





5.5



204


5Cash/other


3.8



301



6





4.2



235


6Total market value of assets


4.8



4,774



100





5.7



3,799


100Actuarial value of liabilities of funded schemes






(5,552
)












(4,529
)Deficit in the funded schemes






(778
)(1)












(730
)(1)Unfunded deferred benefit obligation






(11
)












(33
)Net pension deficit






(789
)












(763
) (1)Of which
 673 million deficit relates to the Irish scheme,  30 million deficit relates to the UK scheme,  62 million deficit relates to the EBS schemes and  13 million deficit relates to other schemes (2011: 
754 million deficit relates to the Irish scheme,  69 million surplus relates to the UK scheme,  28 million deficit relates to the EBS schemes
and  17 million deficit relates to other schemes). At 31 December 2012, the Group pension scheme assets
included AIB shares amounting to Nil (2011: Nil). Included in the actuarial value of the liabilities is an amount in respect of commitments to pay annual pensions amounting to
 104,234 (2011:  109,813) in aggregate to a number of former directors or the spouses of deceased former
directors.








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12  Retirement benefits(continued) Defined benefit expense The following table sets out the components of
the defined benefit expense for each of the three years ended 31 December 2012, 2011 and 2010:  2012
 m


2011
 m


2010
 mIncluded in administrative expenses:Current service cost


79



70



69Past service cost


(218
)


3



4Expected return on pension scheme assets


(227
)


(235
)


(215
)Interest on pension scheme liabilities


223



217



214Curtailment


(8
)


(26
)


Cost of providing defined retirement benefits


(151
)


29



72 The actual return on scheme assets during the year ended 31 December 2012 was  379 million (2011:  2 million; 2010:  328 million). Movement in defined benefit obligation and scheme assets The following
tables set our the movement in the defined benefit obligation and scheme assets during 2012 and 2011:  Movement in defined benefit obligation

2012
 m


2011
 mDefined benefit obligation at beginning of year


4,562



3,939Acquisition during the year






126Current service cost


79



70Past service cost  Termination benefits


182



 Other


(218
)


3Interest cost


223



217Contributions by employees


20



18Actuarial losses


1,010



301Benefits paid


(280
)


(119
)Curtailment  Termination


(29
)


 Other


(8
)


(26)Translation adjustment on non-euro schemes


22



33Defined benefit obligation at end of year


5,563



4,562  Movement in the scheme assets

2012
 m


2011
 mFair value of scheme assets at beginning of year


3,799



3,539Acquisition during the year






109Expected return(1)


227



235Actuarial gains and (losses)


152



(233
)Contributions by employer


830
(2)


216Contributions by employees


20



18Benefits paid


(279
)


(119
)Translation adjustment on non-euro schemes


25



34Fair value of scheme assets at end of year


4,774



3,799 (1)Includes payment of pension levy. (2)Includes the transfer to the Irish scheme of interests in an SPV owning loans and
receivables previously transferred at fair value from the Group.








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12  Retirement benefits(continued) Amount recognised in the statement of comprehensive income The following
table sets out an analysis of the amount recognised in the statement of comprehensive income for the years ended 31 December 2012, 2011 and 2010:  2012
 m


2011
 m


2010
 mActual return less expected return on pension scheme assets


152



(233
)


113Experience gains and losses on scheme liabilities


(81
)


31



107Changes in demographic and financial assumptions


(929
)(1)


(332
)


(217
)Actuarial (loss)/gain recognised


(858
)


(534
)


3Deferred tax


118



70



(2
)Recognised in the consolidated statement ofcomprehensive income(2)


(740
)


(464
)


1 (1)Principally due to reduction
in discount rate and updating of mortality assumptions in 2012. (2)The
Groups share of recognised (losses)/gains in associated undertakings, includes an actuarial gain of Nil for the year ended 31 December 2012 (2011: an actuarial gain of  4 million; 2010: an actuarial loss of  13 million) (note 46). History of experience gains and losses The following table sets out an
analysis of the gains and losses for the defined benefit schemes for the years ended 31 December 2008 to 31 December 2012:  2012
 m


2011
 m


2010
 m


2009
 m


2008
 mDifference between expected and actual return on scheme assets:Amount


152



(233
)


113



150



(1,367
)Percentage of scheme assets


3
%


6
%


3
%


5
%


55
%Experience gains and losses on scheme liabilities:Amount


(81
)


31



107



122



(51
)Percentage of scheme liabilities


1
%


1
%


3
%


3
%


1
%Total gross amount recognised in SOCI(1):Amount


(858
)


(534
)


3



180



(807
)Percentage of scheme liabilities


15
%


12
%


0
%


5
%


22
% (1)Statement of comprehensive income. Defined benefit pension schemes An analysis of the pension deficit for
the years ended 31 December 2008 to 31 December 2012 is set out in the following table:  2012
 m


2011
 m


2010
 m


2009
 m


2008
 mFunded defined benefit obligation


5,552



4,529



3,883



3,595



3,548Scheme assets


4,774



3,799



3,539



2,939



2,499Deficit within funded schemes


778



730



344



656



1,049Unfunded defined benefit obligation


11



33



56



58



56Deficit within schemes


789



763



400



714



1,105








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12  Retirement benefits(continued) IAS 19 Employee Benefits (revised) On 16 June 2011, the IASB
published an amended IAS 19 Employee Benefits.The changes are effective from 1 January 2013. The application of this amended standard is retrospective. The main changes are as follows: 

Introduction of enhanced disclosures about defined benefit plans; 

Disaggregation of defined benefit costs into various components; 

Changes as regards the recognition of curtailments, past service costs and termination costs; 

Replacement of interest cost and expected return on assets with a net interest cost on the net defined benefit liability (asset); and 

Recognition of all administration expenses, with the exception of costs associated with management of scheme assets, in profit or loss. Based on the assumption that the defined benefit schemes will remain open for the full year 2013, the Group estimates that the adoption of IAS 19 revised will increase
its retirement benefit charge for 2013 by c.  20 million. In addition, the adoption of IAS 19 revised will require the restatement in 2013 of 2012
comparative amounts. Accordingly, a charge for termination benefits of  130 million which was recognised in 2012, will be recognised in 2013. Defined contribution schemes The Group operates a number of DC schemes. The
defined benefit schemes in Ireland and the UK were closed to new members from December 1997. Employees joining after December 1997 joined on a defined contribution basis. Members of the DC scheme were offered the option to join the hybrid
arrangement when it was introduced in December 2007. The standard contribution rate to the DC scheme was 8 per cent. during 2012 and 10 per cent. in respect of the defined contribution elements of the hybrid arrangement. Staff joining in the UK from 1 January 2009 are eligible to become members of a new enhanced UK defined contribution scheme. Existing members of the UK defined
contribution scheme were also given the opportunity to join the enhanced scheme. The enhanced scheme has employer contributions ranging from 5 per cent. to 20 per cent., increasing as the employee gets older. The member contribution rate
also increases with age. All members of the UK defined contribution scheme are also accruing benefits under S2P (the UK State Second Pension). The total cost in
respect of the Irish DC scheme, the EBS DC schemes and the UK DC schemes for 2012 was  13 million (2011:
 12 million; 2010:  13 million). The cost in respect of defined contributions is included in administrative expenses (note 10). Long-term disability payments AIB provides an additional benefit to employees
who suffer prolonged periods of sickness. It provides for the partial replacement of income in event of illness or injury resulting in the employees long term absence from work. In 2012, the Group contributed  8 million (2011:  7 million; 2010:  7 million) towards insuring
this benefit. This amount is included in administrative expenses (note 10).








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13  Provisions for impairment on financial
investments available for sale

2012
 m


2011
 m


2010
 mDebt securities (note 33)






164



56Equity securities (note 33)


86
(1)


119



1886



283



74 (1)Of which
 82 million (2011:  106 million) relates to NAMA subordinated bonds. 14  Profit/(loss) on disposal of property 2012 Release of deferred profit on sale of property  2 million. 2011 The sale of properties which were surplus to business requirements gave rise to
a loss on disposal of  1 million. 2010 The sale of properties which were surplus to business requirements gave rise to a profit on disposal of  1 million relating to continuing operations. In addition, the Group continued with its sale and leaseback programme announced in 2006 and 29 properties were sold giving rise to a profit before tax
of  45 million ( 33 million after tax) reported within continuing operations. The leases qualify as operating leases and the commitments in respect
of the operating lease rentals (initial rent payable  11 million per annum) are included in note 64 Commitments, operating lease rentals. There were no sales recorded within discontinued operations. 15  Profit/(loss) on disposal of businesses 2012 In November 2011, AIB entered into an agreement to sell its investment in AIB Asset Management Holdings (Ireland) Limited and related companies. AIBs investment was
derecognised in May 2012, following regulatory approval for the disposal. This resulted in a profit of  2 million before tax (tax charge: Nil). The
sale of an offshore subsidiary also gave rise to a profit of  1 million (tax charge Nil). 2011 On 30 June 2011, AIB announced that it had signed an agreement to sell its investment in AIB International Financial Services Limited and related companies.
AIBs investment was derecognised at 30 November 2011, following regulatory approval for the disposal. This resulted in a profit of 
27 million before tax (tax charge: Nil). The Group also completed the disposal of an offshore subsidiary, AIB Jerseytrust Limited, on 30 September 2011. This disposal resulted in a profit before tax of
 10 million (tax charge: Nil). The Group received an additional  1 million consideration which had been deferred in 2010 on the disposal of Goodbody
Holdings Limited. 2010 On 20 September 2010, AIB announced that it had
signed an agreement to sell its investment in Goodbody Holdings Limited and related companies. AIBs investment was derecognised at 31 December 2010, following the sale becoming unconditional. This resulted in a loss of  11 million before tax (tax charge: Nil).








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16 Auditors fees The
disclosure of Auditors fees are in accordance with (SI 220)(1) which mandates the disclosure of fees in particular categories and that fees paid to the Group Auditor only (KPMG Ireland) for services to the parent company and Group be disclosed
in this format. All years presented are on that basis.  2012




2011




2010 m




 m




 mAuditors fees (excluding VAT):Audit


2.1





2.3





2.7Other assurance services


1.5





1.0





2.2Taxation advisory services


0.2





0.3





0.2Other non-audit services














0.13.8





3.6





5.2 Included in the above are amounts paid to the Group Auditor (KPMG Ireland) for services provided to other Group companies: 

audit  90,000 (2011:  100,000; 2010:
 110,000); 

other assurance services  187,500 (2011:  113,510; 2010:  53,250); 

taxation advisory services  17,835 (2011:  10,750; 2010:  9,950); and 

other nonaudit services Nil (2011: Nil; 2010: Nil). Other assurance services include fees for additional assurance
issued by the firm outside of the audit of the statutory financial statements of the Group and subsidiaries. These fees include assignments where the Auditor, in Ireland, provides assurance to third parties. The Group policy on the provision of non-audit services to the parent and its subsidiary companies includes the prohibition on the provision of certain services and the
pre-approval by the Audit Committee of the engagement of the Auditor for non-audit work. The Audit Committee has reviewed the level of non-audit services fees and
is satisfied that it has not affected the independence of the Auditor. It is Group policy to subject all large consultancy assignments to competitive tender, where appropriate.  2012




2011




2010 m




 m




 mAuditors fees excluding KPMG Ireland (excluding VAT):


0.8





1.0





2.4 (1)SI 220 is titled the European Communities
(Statutory Audits) (Directive 2006/43/EC) Regulations 2010.








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17  Taxation



2012
 m




2011  m




2010  mAllied Irish Banks, p.l.c. and subsidiariesCorporation tax in Republic of IrelandCurrent tax on income for the year










4





6Adjustments in respect of prior years




(2
)




(1
)




8(2
)




3





14Double taxation relief
















2(2
)




3





16Foreign taxCurrent tax on income for the year




14





24





(30)Adjustments in respect of prior years




(12
)




13





102





37





(20)





40





(4)Deferred taxationOrigination and reversal of temporary differences




170





1,167





1,709Adjustments in respect of prior years




13





(19
)




5183





1,148





1,714Total tax credit for the year




183





1,188





1,710Effective tax rate




4.8
%




23.3
%




14.2
%Factors affecting the effective tax rate The
effective income tax rate for 2012 is lower (2011 higher and 2010 lower) than the weighted average of the Groups statutory corporation tax rates across its geographic locations. The differences are explained in the following table.2012
%




2011
%




2010
%Weighted average corporation tax rate




14.5
(1)




16.8





14.4Effects of:Expenses not deductible for tax purposes




(0.3
)




(0.3
)




(0.1)Exempted income, income at reduced rates and tax credits




0.1





7.9
(2)




0.3Income taxed at higher rates










(0.7
)




(0.2)Deferred tax assets not recognised/reversal of amounts previously not recognised




(7.2
)




0.3





Other differences




(0.4
)




0.8





(0.4)Change in tax rates(3)




(1.8
)




(1.4
)




(0.1)Tax on associated undertakings
















0.1Adjustments to tax charge in respect of previous years




(0.1
)




(0.1
)




0.2Effective income tax rate




4.8





23.3





14.2 (1)The change in the weighted average corporation
tax rate in 2012 was primarily driven by reduced tax losses in the UK tax jurisdiction as a proportion of the overall loss compared to the previous year. (2)Exempted income substantially relates to the gain on redemption of subordinated
liabilities and other capital instruments (note 7). (3)Change in the UK tax
rate.








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18  Discontinued operations Arising from the Prudential Capital Assessment Review (PCAR) 2010 requirement to raise additional capital, the Group announced that its investments in BZWBK,
M&T Bank Corporation and Bulgarian American Credit Bank AD (BACB) were to be disposed of. The disposal of M&T Bank Corporation was completed on
4 November 2010. This transaction led to a loss on disposal of  231 million. The sale of BZWBK was agreed on 10 September 2010 subject to
regulatory approval and completed on 1 April 2011 and the sale of BACB completed on 17 June 2011. There were no discontinued operations in the year to
31 December 2012. The following tables set out income statement analysis of discontinued operations:  2011


2010Profit after taxation from discontinued operations

Notes




 m


 mBZWBK


(A
)




1,628



254M&T Bank Corporation


(B
)








5Bulgarian American Credit Bank AD


(C
)








(60)Total








1,628



199 (A) - BZWBK On 1 April 2011, AIB
completed the sale of its entire shareholding in BZWBK and in BZWBK Asset Management. The proceeds of the sale amounted to  3.1 billion which gave rise to
a profit on disposal of  1.5 billion which was recorded in the income statement. BZWBK had been accounted for as a
discontinued business, the results of which are set out below to the disposal date 1 April 2011. Prior to classification as held for sale, BZWBK was accounted for as a subsidiary undertaking.  To date
of disposal
1 April 2011




2010Profit from discontinued operations



 m




 mNet interest income




126





443Dividend income










14Net fee and commission income




86





324Net trading income




9





69Other operating income




5





(4)Other income




100





403Total operating income




226





846Total operating expenses




(103
)




(412)Operating profit before provisions




123





434Provisions for impairment on loans and receivables and other financial instruments




(24
)




(105)Operating profit




99





329Profit before taxation from discontinued operations




99





329Income tax expense from discontinued operations




(17
)




(72)Profit after taxation from discontinued operations




82





257Loss recognised on the remeasurement to fair value less cost to sell(1)










(3)Profit on disposal(2)




1,546





Profit for the period after taxation from discontinued operations




1,628





254 In 2011,  1,608 million (2010:  184 million) of the profit from discontinued operations of  1,628 million (2010:  254 million) was
attributable to the owners of the parent.








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18  Discontinued operations(continued)  Profit on disposal of BZWBK

1 April 2011
 mGross proceeds from sale


3,112Less: costs of disposal


(13)Net proceeds


3,099Carrying value at date of disposal


1,722(
2)1,377Reclassification of currency translation reserves to the income statement


106Reclassification of available for sale and cash flow hedging reserves to the income statement (net of deferred tax)


63Profit on disposal(3)


1,546 (1)Relates to impairment of intangible assets. (2)The carrying value of  1,722 million at the date of disposal reflects third party assets of  2,293 million (adjusted for intercompany liabilities due by BZWBK amounting
to  58 million) and non-controlling interests of  513 million (note 52). (3)No tax charge arises on this disposal. Gross assets and liabilities of BZWBK at disposal date At the date of disposal
on 1 April 2011, gross assets amounted to  13,774 million and gross liabilities (excluding intercompany balances) amounted to  11,481 million.  Effect of disposal on cash flows of the Group

2011  mConsideration received satisfied in cash


3,112less: costs of disposal


(13)Cash and cash equivalents disposed of (note 59)


(673)Net cash inflow


2,426 The following cash flows relate to the discontinued operations of BZWBK:  Period to
1 April 2011
 m


2010  mProfit after taxation


1,628



199Income tax


17



72Profit before taxation


1,645



271Net movement in non cash items from operating activities


(1,573
)


111Net cash outflow from operating assets and liabilities


(87
)


(318)Taxation paid


(34
)


(56)Net cash flows from operating activities


(49
)


8Net cash flows from investing activities


(38
)


42Net cash flows from financing activities






(22)Decrease in cash and cash equivalents


(87
)


28Cash and cash equivalents at beginning of period


767



716Cash and cash equivalents disposed of


(673
)


Effect of exchange rates on cash and cash equivalents


(7
)


23Cash and cash equivalents at date of disposal/year end






767








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18  Discontinued operations(continued) (B) - M&T Bank Corporation On 4 November 2010, AIB completed the
disposal of 26,700,000 shares of common stock of M&T Bank Corporation. The proceeds from the sale amounted to US$ 77.50 per share, or total proceeds of
 1,467 million, after costs. M&T was previously accounted for
as an interest in associated undertakings.  2010
 mProfit from discontinued operationsShare of profits from associated undertakings net of tax(1)


23Reversal of impairment on associated undertakings


213Results from discontinued operations, net of taxation


236Loss on the disposal of investment in associated undertakings


(231)Income tax on loss on disposal


Profit after taxation for the period from discontinued operations attributable to the owners of the parent


5 (1)The tax charge in 2010 amounted to  11 million.  Effect of disposal on cash flows of the Group

2010  mConsideration received - satisfied in cash


1,487Cash and cash equivalents disposed of


Net cash inflow


1,487 (C) - Bulgarian American Credit Bank AD On
16 May 2011, the Group announced that it had signed an agreement to sell its 49.99% shareholding in Bulgarian American Credit Bank AD. The sale completed on 17 June 2011 resulting in a gain of  0.1 million. In 2011, the loss arising on this investment amounted to Nil. In 2010, total loss attributable to the owners of the Parent amounted to 
60 million, of which  10 million arose from operations and  50 million was recognised on remeasurement of the investment to fair value less
costs to sell.  19  Non-controlling interests in subsidiaries

2012
 m


2011
 m


2010
 mThe profit attributable to non-controlling interests is analysed as follows:Continuing operations: other equity interests in subsidiaries (note 48)(1)










Discontinued operations: ordinary share interest in subsidiaries(2)






20



70



20



70 (1)There were no distributions paid in 2011 and
2010 on the perpetual preferred securities. The outstanding amount of  189 million on these securities was purchased in full for cash in June 2011
(note 7). (2)The Groups interest in BZWBK was disposed of on 1 April
2011.








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20  (Loss)/earnings per share The calculation of basic earnings per unit of ordinary/convertible non-voting (CNV) shares is based on the profit/(loss) attributable to ordinary/CNV
shareholders divided by the weighted average of ordinary/CNV shares in issue, excluding treasury shares and own shares held. The diluted earnings per share is based
on the profit/(loss) attributable to ordinary/CNV shareholders divided by the weighted average ordinary/CNV shares in issue excluding treasury shares and own shares held, adjusted for the effect of dilutive potential ordinary shares.  (a) Basic

2012
 m


2011
 m


2010  mLoss attributable to equity holders of the parent from continuing operations


(3,647)



(3,920)



(10,361)Gain on redemption of RCI and LPI recognised in equity (note 7)






344



Loss attributable to ordinary/CNV shareholders from continuing operations


(3,647)



(3,576)



(10,361)Profit attributable to ordinary/CNV shareholders from discontinued operations






1,608



129  Number of shares (millions)Weighted average number of ordinary shares
in issue during the year


515,789.0



226,533.5



1,023.8Weighted average number of CNV shares in issue during the year






2,787.7



258.7Contingently issuable shares



(3)


599.9
(2)


531.7
(1)Weighted average number of shares


515,789.0



229,921.1



1,814.2Loss per share from continuing operations  basic


EUR (0.7
c)


EUR (1.6
c)


EUR (571.1
c)Earnings per share from discontinued operations  basic






EUR 0.7
c


EUR 7.1
c








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20  (Loss)/earnings per share(continued)  (b) Diluted

2012
 m


2011
 m


2010  mLoss attributable to ordinary/CNV shareholders from continuing operations (note 20 (a))


(3,647)



(3,576)



(10,361)Dilutive effect of CCNs interest charge










Profit/(loss) attributable to ordinary/CNV shareholders from discontinued operations






1,608



129(3,647)



(1,968)



(10,232)Adjusted loss attributable to ordinary/CNV shareholders from continuing operations


(3,647)



(3,576)



(10,361)Adjusted profit attributable to ordinary/CNV shareholders from discontinued operations






1,608



129  Number of shares (millions)Weighted average number of ordinary shares in issue during the year


515,789.0



226,533.5



1,023.8Weighted average number of CNV shares in issue during the year






2,787.7



258.7Dilutive effect of options and warrants outstanding










Dilutive effect of CCNs










Contingently issuable shares



(3)


599.9
(2)


531.7
(1)Potential weighted average number of shares


515,789.0



229,921.1



1,814.2Loss per share from continuing operationsdiluted


EUR (0.7
c)


EUR (1.6
c)


EUR (571.1
c)Earnings per share from discontinued operations  diluted






EUR 0.7
c


EUR 7.1
c  

On 23 December 2010, AIB issued 675,107,845 ordinary shares and 10,489,899,564 CNV shares to the NPRFC. The CNV shares ranked equally with the ordinary shares in terms of dividend payment and were converted into
ordinary shares on a one to one basis on 8 April 2011. 

On 27 July 2011, AIB issued 500 billion ordinary shares to the NPRFC. 

Bonus shares in lieu of the dividend on the 2009 Preference Shares were issued to the NPRFC in 2012, 2011 and 2010, amounting to: 3,623,969,972; 1,247,273,565; and 198,089,847 shares respectively. These bonus shares
have been included in the weighted average number of shares in issue prospectively from the date of issue as they represent a dilution of earnings per share from that date. 

The incremental shares from assumed conversion of options are not included in calculating the diluted per share amounts because they are anti-dilutive. Outstanding warrants were cancelled 23 December 2010. 

In July 2011, AIB issued  1.6 billion in convertible capital notes (CCNs). These notes are mandatorily redeemable
and will convert to AIB ordinary shares at a conversion price of  0.01 per share (note 44) if the Core Tier 1 capital ratio breaches 8.25%. These incremental shares have not been included in
calculating the diluted per share amounts because they are anti-dilutive. Both the ordinary and CNV shares are included in the weighted average number
of shares on a time apportioned basis. (1)Contingently issuable shares were
treated as outstanding from 14 December 2009, the date the dividend stopper came into effect. The shares relate to the number of shares (on a time apportioned basis) that would issue to the National Pension Reserve Fund Commission
(NPRFC), if the annual coupon on the  3.5 billion Preference Shares was not paid in cash. These contingently issuable shares were issued on
13 May 2010 (198,089,847 shares). (2)The dividend stopper
remained in force throughout 2010, accordingly, contingently issuable shares have been treated as outstanding from 13 May 2010 in respect of the dividend payment due on 13 May 2011. This dividend was satisfied through bonus shares,
484,902,878 of which were issued on 13 May 2011, leaving a residual of 762,370,687 which were issued in July 2011. Accordingly, 484,902,878 were treated as contingently issuable for the period up to 13 May 2011, with 724,252,152 being
contingently issuable up to 26 July 2011. In addition, 38,118,535 contingently issuable shares have been included from 13 May to 26 July 2011 as the full issue of shares was not satisfied on the due date (note 45). (3)The SLO, which came into effect on 14 April 2011, superseded the
dividend stopper, with distributions now being payable by AIB in its sole discretion. Accordingly, there were no contingently issuable shares during 2012.








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21  Distributions on equity shares No dividends were paid on ordinary shares in 2012, 2011 or 2010. 22 Transfer of
business from Anglo Irish Bank Corporation On 24 February 2011, AIB announced that it had agreed, pursuant to a transfer order issued by the High Court
(under the Credit Institutions (Stabilisation) Act 2010), the transfer of deposits and NAMA senior bonds from Anglo Irish Bank Corporation (Anglo) to AIB. AIB also announced the transfer to AIB by way of a share sale of Anglo Irish Bank
Corporation (International) PLC in the Isle of Man (Anglo IOM), which included customer deposits. In total,  6.9 billion in deposits and  11.9 billion in NAMA senior bonds (nominal value  12.2 billion) transferred. In addition, a further  1.6 billion
in deposits were held in Anglo IOM. A net capital contribution of  1.5 billion was generated on the date of the transaction. This transaction between AIB and Anglo, both of which are under the common control of the Irish Government, was a transfer of a business (as defined by IFRS 3
Business Combinations). In line with the Group accounting policy for transfer of a business under common control, this acquisition was accounted for at carrying value. Management estimates that had Anglo IOM been consolidated from 1 January 2011, it would have contributed  2 million of additional revenue and Nil of additional profits before taxation to the Group in 2011. The key
elements of the transfer were: At date of
acquisition  mIdentifiable assets acquired at carrying valueNAMA senior bonds (note 32)


11,854Accrued interest on NAMA senior bonds


55Other assets


236Identifiable liabilities acquired at carrying valueDeposits(1)


(6,868)Total


5,277AIB net cash payment


3,779Net capital contribution(2)


1,4985,277 (1)Included within customer accounts (note 40). (2)The net capital contribution is recorded in the statement of changes in equity. The statement of financial position of Anglo IOM at the date of acquisition is set out in the following table:  31 January
2011  mAssetsLoans and receivables to banks(1)






1,713Loans and receivables to customers/prepayments and accrued income






76Total assets






1,789LiabilitiesDeposits by banks(2)






37Customer accounts






1,570Other liabilities






2Total liabilities






1,609Share capital






158Retained profits






22Shareholders equity






180Total shareholders equity and liabilities






1,789 (1)Includes balances with Anglo group companies of  1,113 million. (2)Balances with Anglo group companies of  37 million.








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23 Acquisition of EBS Limited (EBS) On 31 March 2011, the Minister for Finance proposed the combination of AIB and EBS to form one of the two pillar banks in the Republic of Ireland. On 26 May
2011, AIB entered into an agreement with EBS, the Minister for Finance and the NTMA to acquire 100% of the share capital of EBS for a nominal consideration of
1. The acquisition completed on 1 July 2011 and EBS was consolidated into the AIB Group financial statements with effect from 1 July 2011. As part of the transaction, EBS was demutualised and was issued a banking licence. EBS, which was renamed EBS Limited, now operates as a fully licensed,
wholly-owned subsidiary of AIB, with its own branch network. The principal activities of EBS involve the provision of mortgage lending, savings, investments and insurance arrangement services to customers. Both AIB and EBS are under the common control of the Irish Government, therefore, the acquisition was accounted for as a common control transaction under the carrying
value basis in accordance with AIB Group accounting policy. The result of the transaction was recognised in equity as arising from a transaction with shareholders. The carrying value of assets acquired and liabilities assumed as at the acquisition date are as set out hereunder:  EBSacquisition value
(1)Notes




as at
1 July 2011  mAssetsCash and balances at central banks








176Financial assets held for sale to NAMA








34Derivative financial instruments


27





81Loans and receivables to banks


28





384Loans and receivables to customers


29





15,989Financial investments available for sale


33





1,965NAMA senior bonds


32





301Intangible assets and goodwill


36





21Property, plant and equipment


37





42Other assets








22Current taxation








5Deferred taxation








158Prepayments and accrued income








42Total assets








19,220LiabilitiesDeposits by central banks and banks


39





4,545Customer accounts


40





10,060Derivative financial instruments


27





156Debt securities in issue


41





3,410Deferred taxation


38





10Other liabilities








58Provisions for liabilities and commitments








14Accruals and deferred income








208Retirement benefit liabilities


12





17Total liabilities








18,478Net assets








742 The net assets amount of  742 million
is reflected as a capital contribution in Allied Irish Banks, p.l.c.s separate financial statements. In AIB Groups consolidated financial statements,
the capital contribution amounts to  777 million, a difference of  35 million to that recognised at
parent company level. This difference arises from the cross holdings of investments between AIB and EBS which are eliminated at a consolidated level. Acquisition
related costs of  0.4 million have been included in operating expenses. (1)AIB accounting policies have been applied to EBS balances at 30 June 2011.








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23 Acquisition of EBS Limited(EBS)(continued) Contingent liabilities and commitments At 1 July 2011, EBS had undrawn
lending commitments of  194 million. Contribution from date of
acquisition Management estimates that had EBS been consolidated from 1 January 2011, it would have contributed  531 million of additional revenue and  31 million of additional losses before taxation to the Group in 2011. Cashflows in respect of EBS acquisition The aggregate net inflow of cash on
acquisition of EBS was  359 million net of transaction costs of  0.4 million. Additional information on EBS is set out in note m  Investments in Group undertakings to the parent company financial statements. 24 Financial assets and financial liabilities held for sale to NAMA On
7 April 2009, the Minister for Finance announced the Governments intention to establish a National Asset Management Agency (NAMA) and on 22 November 2009, the NAMA Act was enacted providing for the establishment of NAMA.
The participation of AIB in the NAMA programme was approved by shareholders at an Extraordinary General Meeting held on 23 December 2009. The majority of loans and receivables held for sale to NAMA transferred during 2010 with the residual
below transferring in 2011. There were no loans classified as held for sale or transferring to NAMA in 2012. The following table provides a movement analysis of
loans and receivables held for sale to NAMA:  Grossloans andreceivables


Impairmentprovisions


Carrying value m


 m


 mAt 1 January 2011


2,248



(329
)


1,919Acquisition of subsidiary(1)


74



(40
)


34Exchange translation adjustments


(13
)


7



(6)Transferred to NAMA during 2011


(1,790
)


570



(1,220)Reclassification in/out and other movements(2)


(519
)


(121
)


(640)Impairment charge during 2011






(87
)


(87)At 31 December 2011










 (1)Acquired on acquisition of EBS (note 23). (2)Includes changes in eligible loans and receivables transferring during 2011,
along with movements in the number of loans and receivables within the eligible pool. The unwind of the discount on the carrying value of impaired loans amounted to
 5 million for the year ended 31 December 2011 and was included in the carrying value of loans and receivables held for sale to NAMA. This was
credited to interest income.








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25 Disposal groups and non-current assets held for sale Arising from the results of the PCAR/PLAR in March 2011, AIB is required to dispose of non-core assets. Accordingly, certain of these assets are classified as held for
sale at 31 December 2012. These assets do not constitute a major line of business or a geographical area of operations. At 31 December 2012, disposal
groups and non-current assets held for sale comprise non-current assets and non-current liabilities. These mainly include loans and receivables, but also included within this caption is the Groups investment in Aviva Life Holdings Ireland
Limited (ALH), now held as an equity investment at fair value through profit or loss. Disposal groups and non-current assets/liabilities are shown as
single line items in the statement of financial position with no re-presentation of comparatives. An analysis of the components of these single line items is set out below:  2012



2011Assets m






Liabilities m










Assets m






Liabilities mLoans and receivables(1):Customers




353



















1,184







Banks
























7







353



















1,191







Associated undertakings(2)(3) (note 34)




12



















196







Other:Equity investment at fair value through profit or loss(3)




196



























Repossessed assets
























4







Unquoted equities
























22







AIB Investment Managers(4)
























4







Other




1








(5)










5







3
(5)197



















35







3Total disposal groups and non-current assets held for sale




562



















1,422







3 (1)Loans and receivables held for sale are net of
provisions of  122 million (31 December 2011:  9 million) (note 31). (2)Associated undertakings include LaGuardia Hotel  12 million at 31 December 2012 and ALH  196 million at 31 December 2011. (3)On 1 July 2012, AIB designated its investment in ALH as an equity investment
at fair value through profit or loss (note 35). (4)AIB Investment Managers
was disposed of during 2012 resulting in a gain of  2 million. (5)Liabilities of Nil (31 December 2011:  3 million includes deposits from banks of  1 million and accrued fees of  2 million). Further details of loans and receivables held for sale are set out in the Risk management section of this report.








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26 Trading portfolio financial assets



2012 m






2011 mDebt securities:Government securities












24Bank eurobonds












6Other debt securities




22







2422







54Equity securities




2







224







562012 m






2011 mOf which listed:Debt securities




22







54Equity securities




1







1Of which unlisted:Equity securities




1







124







56 During 2008, trading portfolio financial assets reclassified to financial investments available for sale, in accordance with the amended
IAS 39 Financial Instruments: Recognition and Measurement, amounted to  6,104 million. The fair value of reclassified assets at
31 December 2012 was  1,025 million (2011:  1,410 million; 2010:  2,538 million; 2009:  4,104 million; 2008:  5,674 million). As of the reclassification
date, effective variable interest rates on reclassified trading portfolio financial assets ranged from 4% to 10% with expected gross recoverable cash flows of
 7,105 million. If the reclassification had not been made, the Groups income statement for the year ended 31 December 2012 would have included
unrealised fair value gains on reclassified trading portfolio financial assets of  136 million (2011: gains  91 million; 2010: gains  38 million). After reclassification, the reclassified assets contributed the following amounts to the income statement:  2012 m


2011 m


2010 mInterest on financial investments available for sale


32



58



82Provisions for impairment of financial investments available for sale






(27
)


(1
) Up to the date of reclassification in 2008, 
55 million of unrealised losses on the reclassified trading portfolio financial assets were recognised in the income statement (year ended December 2007:  111 million).








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27 Derivative financial instruments Derivatives are used to service customer requirements, to manage the Groups interest rate, exchange rate, equity and credit exposures and for trading purposes.
Derivative instruments are contractual agreements whose value is derived from price movements in underlying assets, interest rates, foreign exchange rates or indices. The majority of the Groups derivative activities are undertaken at the
parent company level (Allied Irish Banks, p.l.c.) and the following discussion applies equally to the parent company and Group. Market risk is the exposure to
potential loss through holding interest rate, exchange rate and equity positions in the face of absolute and relative price movements, interest rate volatility, movements in exchange rates and shifts in liquidity. Credit risk is the exposure to loss
should the counterparty to a financial instrument fail to perform in accordance with the terms of the contract. While notional principal amounts are used to express
the volume of derivative transactions, the amounts subject to credit risk are much lower because derivative contracts typically involve payments based on the net differences between specified prices or rates. Credit risk in derivative contracts is the risk that the Groups counterparty in the contract defaults prior to maturity at a time when the Group has a claim on the
counterparty under the contract (i.e. contracts with a positive fair value). The Group would then have to replace the contract at the current market rate, which may result in a loss. For risk management purposes, consideration is taken of the fact
that not all counterparties to derivative positions are expected to default at the point where the Group is most exposed to them. The following table presents the
notional principal amount together with the positive fair value of interest rate, exchange rate, equity and credit derivative contracts for 2012 and 2011:  2012
 m


2011  mInterest rate contracts(1)Notional principal amount


104,431



127,945Positive fair value


2,643



2,910Exchange rate contracts(1)Notional principal amount


7,485



7,439Positive fair value


71



44Equity contracts(1)Notional principal amount


3,848



3,962Positive fair value


121



92Credit derivatives(1)Notional principal amount


114



216Positive fair value






Total notional principal amount


115,878



139,562Positive fair value(2)


2,835



3,046 (1)Interest rate, exchange rate and credit
derivative contracts are entered into for both hedging and trading purposes. Equity contracts are entered into for trading purposes only. (2)65% of fair value relates to exposures to banks (2011: 70%).








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27 Derivative financial instruments(continued) The Group uses the same credit control and risk management policies in undertaking all off-balance sheet commitments as it does for on balance sheet lending including
counterparty credit approval, limit setting and monitoring procedures. In addition, derivative instruments are subject to the market risk policy and control framework as described in the Risk Management section. The following table analyses the notional principal amount and positive fair value of interest rate, exchange rate, equity and credit derivative contracts by residual
maturity: Residual maturity< 1 year m


1 < 5 years m


5 years + m


Total m2012Notional principal amount


67,989



34,955



12,934



115,878Positive fair value


511



1,364



960



2,8352011Notional principal amount


78,266



45,408



15,888



139,562Positive fair value


428



1,163



1,455



3,046 AIB Group has the following concentration of exposures in respect of notional principal amount and positive fair value of interest rate,
exchange rate, equity and credit derivative contracts. The concentrations are based primarily on the location of the office recording the transaction.  Notional principal amount




Positive fair value2012
 m


2011
 m




2012
 m


2011  mRepublic of Ireland


111,194



133,092





2,205



2,349United Kingdom


4,080



5,165





595



638United States of America


604



1,305





35



59Rest of World
















115,878



139,562





2,835



3,046








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27 Derivative financial instruments(continued) Trading activities The Group maintains trading positions in a variety of
financial instruments including derivatives. These derivative financial instruments include interest rate, foreign exchange, equity and credit derivatives. Most of these positions arise as a result of activity generated by corporate customers while
the remainder represent trading decisions of the Groups derivative and foreign exchange traders with a view to generating incremental income. All trading
activity is conducted within risk limits approved by the Board. Systems are in place which measure risks and profitability associated with derivative trading positions as market movements occur. Independent risk control units monitor these risks. The risk that counterparties to derivative contracts might default on their obligations is monitored on an ongoing basis and the level of credit risk is minimised
by dealing with counterparties of good credit standing and by the use of Credit Support Annexes and ISDA Master Netting Agreements. As the traded instruments are recognised at market value, these changes directly affect reported income for the
period. Exposure to market risk is managed in accordance with risk limits approved by the Board through buying or selling instruments or entering into offsetting positions. The Group undertakes trading activities in interest rate contracts with the Group being a party to interest rate swap, forward, future, option, cap and floor contracts.
The Groups largest activity is in interest rate swaps. The two parties to an interest rate swap agree to exchange, at agreed intervals, payment streams calculated on a specified notional principal amount. Forward rate agreements are also used
by the Group in its trading activities. Forward rate agreements settle in cash at a specified future date based on the difference between agreed market rates applied to a notional principal amount. Risk management activities In addition to meeting customer needs, the
Groups principal objective in holding or issuing derivatives for purposes other than trading is the management of interest rate and foreign exchange rate risks. The operations of the Group are exposed to interest rate risk arising from the fact that assets and liabilities mature or reprice at different times or in differing
amounts. Derivatives are used to modify the repricing or maturity characteristics of assets and liabilities in a cost-efficient manner. This flexibility helps the Group to achieve liquidity and risk management objectives. Similarly, foreign exchange
derivatives can be used to hedge the Groups exposure to foreign exchange risk. Derivative prices fluctuate in value as the underlying interest rate or foreign
exchange rates change. If the derivatives are purchased or sold as hedges of statement of final position items, the appreciation or depreciation of the derivatives will generally be offset by the unrealised depreciation or appreciation of the hedged
items. To achieve its risk management objectives, the Group uses a combination of derivative financial instruments, particularly interest rate swaps, cross currency
interest rate swaps, forward rate agreements, futures, options and currency swaps, as well as other contracts. The notional principal and fair value amounts for instruments held for risk management purposes entered into by the Group at
31 December 2012 and 2011, are presented within this note.








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27 Derivative financial instruments(continued) The following table shows the notional principal amount and the fair value of derivative financial instruments analysed by product and purpose as at 31 December 2012
and 31 December 2011. A description of how the fair values of derivatives are determined is set out in note 56.  2012




2011Notional




Fair values




Notional




Fair valuesprincipal




Assets




Liabilities




principal




Assets




Liabilitiesamount














amount m




 m




 m




 m




 m




 mDerivatives held for tradingInterest rate derivatives - over the counter (OTC)Interest rate swaps




27,040





1,435





(1,691)





40,707





1,709





(2,002)Cross-currency interest rate swaps




1,826





80





(68)





2,193





70





(115)Forward rate agreements






















1,122





1





(1)Interest rate options




1,013





9





(9)





1,762





14





(11)Total OTC interest rate contracts




29,879





1,524





(1,768)





45,784





1,794





(2,129)Interest rate derivatives - exchange tradedInterest rate futures




124

















4,605











Interest rate contracts total




30,003





1,524





(1,768)





50,389





1,794





(2,129)Foreign exchange derivatives (OTC)Foreign exchange contracts




7,266





69





(19)





7,173





40





(93)Currency options bought and sold




219





2





(2)





266





4





(4)Foreign exchange derivatives total




7,485





71





(21)





7,439





44





(97)Equity derivatives (OTC)Equity index options




3,848





121





(124)





3,962





92





(95)Equity index contracts total




3,848





121





(124)





3,962





92





(95)Credit derivatives (OTC)Credit derivatives




69











(20)





171











(109)Credit derivatives contracts total




69











(20)





171











(109)Total trading contracts




41,405





1,716





(1,933)





61,961





1,930





(2,430)Derivatives designated as fair value hedges(OTC)Interest rate swaps




15,399





788





(792)





35,872





716





(726)Cross currency interest rate swaps




38











(3)





39











(5)Derivatives designated as cash flow hedges(OTC)Interest rate swaps




56,621





308





(433)





35,610





387





(402)Cross currency interest rate swaps




2,370





23





(94)





6,035





13





(279)Credit default swaps




45











(1)





45











(1)Total hedging contracts




74,473





1,119





(1,323)





77,601





1,116





(1,413)Total derivative financial instruments




115,878





2,835





(3,256)





139,562





3,046





(3,843)








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27 Derivative financial instruments(continued) Cash flow hedges The table below sets out the hedged cash flows which are
expected to occur in the following periods: 2012Within 1 year


Between 1


Between 2


More than


Totaland 2 years


and 5 years


5 years m


 m


 m


 m


 mForecast receivable cash flows


65



6



24



25



120Forecast payable cash flows


15



10



35



32



922011Within 1 year


Between 1


Between 2


More than


Totaland 2 years


and 5 years


5 years m


 m


 m


 m


 mForecast receivable cash flows


243



264



54



24



585Forecast payable cash flows


137



273



114



83



607 The table below sets out the hedged cash flows, including amortisation of terminated cashflow hedges, which are expected to impact the
income statement in the following periods: 2012Within 1 year


Between 1


Between 2


More than


Totaland 2 years


and 5 years


5 years m


 m


 m


 m


 mForecast receivable cash flows


65



6



24



25



120Forecast payable cash flows


64



57



128



67



3162011Within 1 year


Between 1


Between 2


More than


Totaland 2 years


and 5 years


5 years m


 m


 m


 m


 mForecast receivable cash flows


295



309



161



85



850Forecast payable cash flows


137



273



114



83



607 For AIB Group, the ineffectiveness reflected in the income statement that arose from cash flow hedges is a charge of  7 million (2011: a charge of  3 million). The pay fixed cash flow hedges are used to hedge the cash flows on variable rate liabilities, primarily floating rate notes. The receive fixed cash flow hedges are used
to hedge the cash flows on variable rate assets, primarily the variable rate loan portfolio. The total amount recognised in other comprehensive income net of tax
during the year in respect of cash flow hedges was a charge of  162 million (2011: a charge of  209
million). Fair value hedges Fair value hedges are entered into to hedge
the exposure to changes in the fair value of recognised assets or liabilities arising from changes in interest rates, primarily available for sale securities and fixed rate liabilities. The fair values of financial instruments are set out in note
56. The net mark to market on fair value hedging derivatives, excluding accrual and risk adjustments is negative  37 million (2011: positive  14 million) and the net mark to market on the related hedged items is positive  37 million (2011: negative  13
million). Netting financial assets and financial liabilities Derivative
financial instruments are shown on the statement of financial position at their fair value, those with a positive fair value are reported as assets and those with a negative fair value are reported as liabilities. The Group has a number of ISDA Master Agreements (netting agreements) in place which may allow it to net the termination values of derivative contracts upon the
occurrence of an event of default with respect to its counterparties. The enforcement of netting agreements would potentially reduce the statement of financial position carrying amount of derivative assets and liabilities by  1,539 million (2011:  1,369 million). The Group has Credit Support Annexes (CSAs) in place
which provide collateral for derivative contracts. At 31 December 2012,  1,260 million (2011:  1,904 million) of CSAs are included within financial
assets and  361 million (2011:  612 million) of CSAs are included within financial liabilities. Additionally, the Group has agreements in place which may
allow it to net the termination values of cross currency swaps upon the occurrence of an event of default.








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28 Loans and receivables to banks

2012
 m


2011  mFunds placed with central banks


692



1,011Funds placed with other banks


2,226



4,711Provision for impairment


(4
)


(4)2,914



5,718Amounts include:Reverse repurchase agreements


61



59Loans and receivables to banks by geographical area(1)

2012
 m


2011  mRepublic of Ireland


699



1,120United States of America


5



7United Kingdom


2,210



4,589Rest of the world






22,914



5,718 (1)The classification of loans and receivables to
banks by geographical area is based primarily on the location of the office recording the transaction. Loans and receivables to banks include cash collateral of  1,208 million (2011:  1,890 million) placed with derivative counterparties in relation to net derivative
positions (note 27). Under reverse repurchase agreements, the Group has accepted collateral that it is permitted to sell or repledge in the absence of default by
the owner of the collateral. The fair value of collateral received amounted to  61 million (2011:
 55 million). The collateral received consisted of government securities of  61 million (2011:  55
million). The fair value of collateral sold or repledged amounted to Nil (2011: Nil). These transactions were conducted under terms that are usual and customary to standard reverse repurchase agreements.








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29 Loans and receivables to customers

2012
 m


2011  mLoans and receivables to customers


88,123



95,373Amounts receivable under finance leases and hire purchase contracts (note 30)


1,017



1,208Unquoted debt securities


238



891Provisions for impairment (note 31)


(16,406
)


(14,932)72,972



82,540Of which repayable on demand or at short notice


32,619



22,930Amounts include:Due from associated undertakings






1 The unwind of the discount on the carrying amount of impaired loans amounted to  392 million (2011:  231 million) and is included in the carrying value of loans and receivables to customers. This has been credited to interest income. In 2009, certain financial investments available for sale amounting to
 13 million were reclassified to the loans and receivables to customers category. The fair value of reclassified assets at
31 December 2012 was Nil (2011:  1 million). As of reclassification date, the effective interest rates on reclassified available for sale financial assets were in the range 4.79% - 6.44%; the
expected gross recoverable cash flows were  18 million; and the fair value loss recognised in other comprehensive income was  8 million. If the
reclassification had not been made, the Groups statement of comprehensive income for the year ended 31 December 2012 would have included fair value gains of Nil (2011 gains of:  3 million). 30 Amounts receivable under finance leases and hire purchase contracts The following balances principally comprise of leasing arrangements involving vehicles, plant, machinery and equipment.  2012
 m


2011  mGross receivablesNot later than 1 year


362



504Later than one year and not later than 5 years


691



724Later than 5 years


15



381,068



1,266Unearned future finance income


(53
)


(61)Deferred costs incurred on origination


2



3Total


1,017



1,208Present value of minimum payments analysed
by residual maturityNot later than 1 year


362



493Later than one year and not later than 5 years


643



680Later than 5 years


12



35Present value of minimum payments


1,017



1,208Provision for uncollectible minimum
payments receivable(1)


231



227Unguaranteed residual values accruing to the benefit of the Group


1



2Net investment in new business


267



273 (1)Included in the provisions for impairment on
loans and receivables to customers (note 31).








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31  Provisions for impairment on loans and receivables The following table shows provisions for impairment on loans and receivables (both to banks and customers) and also includes provision on loans and receivables within
disposal groups and non-current assets held for sale. The classification of loans and receivables into corporate/commercial, residential mortgages, and other relates to classification used in the Groups ratings tools and are explained in the
Risk management section.  2012Corporate/




Residential




Other




TotalCommercial




mortgages m




 m




 m




 mAt 1 January 2012




11,262





2,648





1,035





14,945Exchange translation adjustments




39





5





3





47Transfers(1)




20





14











34Charge against income statement




1,455





749





230





2,434Amounts written off




(509
)




(55
)




(109
)




(673)Disposals




(108
)




(155
)










(263)Recoveries of amounts written off in previous years




3











1





4Provisions on loans and receivables returned by NAMA




4

















4At 31 December 2012




12,166





3,206





1,160





16,532Total provisions are split as follows:Specific




11,408





2,699





1,082





15,189IBNR




758





507





78





1,34312,166





3,206





1,160





16,532Amounts include:Loans and receivables to banks (note 28)






















4Loans and receivables to customers (note 29)






















16,406Loans and receivables of disposal groups andnon-current assets held for sale (note 25)






















12216,532(1)Includes transfers from provisions for liabilities and commitments.2011Corporate/




Residential




Other




TotalCommercial




mortgages m




 m




 m




 mAt 1 January 2011




6,283





665





1,028





7,976Exchange translation adjustments




66





8











74Acquisition of subsidiaries




302





436











738Transferred on disposal of subsidiary




(133
)




(11
)




(216
)




(360)Charge against income statement:Continuing operations




5,966





1,582





313





7,861Discontinued operations




9











15





245,975





1,582





328





7,885Amounts written off




(665
)




(32
)




(105
)




(802)Recoveries of amounts written off in previous years




2











2





4Provisions on loans and receivables transferred to NAMA (note 24)




(568
)










(2
)




(570)At 31 December 2011




11,262





2,648





1,035





14,945Total provisions are split as follows:Specific




9,648





1,754





859





12,261IBNR




1,614





894





176





2,68411,262





2,648





1,035





14,945Amounts include:Loans and receivables to banks (note 28)






















4Loans and receivables to customers (note 29)






















14,932Loans and receivables of disposal groups andnon-current assets held for sale (note 25)






















914,945








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32 NAMA senior bonds During
2010 and 2011, AIB received NAMA senior bonds and NAMA subordinated bonds as consideration for loans and receivables transferred to NAMA. The senior bonds carry a
guarantee of the Irish Government with interest payable semi-annually each March and September at a rate of six month Euribor. The interest reset date is the second business day prior to the start of each interest period. The bonds were issued from
1 March 2010 and all bonds issued on or after 1 March in any year will mature on or prior to 1 March in the following year. NAMA may, with the consent of the Group, settle the bonds by issuing new bonds with the same terms and
conditions and a maturity date of up to 364 days. The following table provides a movement analysis of the NAMA senior bonds:  2012
 m


2011  mAt 1 January


19,856



7,869Purchased from Anglo Irish Bank Corporation (notes 22 and 63(g))






11,854Acquisition of subsidiary  EBS (note 23)






301Additions






803Net returns


(136
)


(148)Amortisation of discount


105



68Repayments


(2,438
)


(891)At 31 December


17,387



19,856 The estimated fair value of the bonds at 31 December 2012 is
 17,446 million (31 December 2011:  20,061 million). The nominal value of the bonds is  17,737 million (31 December 2011:  20,311 million). Whilst these bonds do not have an external credit rating, the Group has attributed to them a rating of BBB+
(31 December 2011: BBB+) i.e. the external rating of the Sovereign.








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33 Financial investments available for sale The following table gives at 31 December 2012 and 31 December 2011, the carrying value (fair value) of financial investments available for sale by major
classifications together with the unrealised gains and losses.  2012Unrealised


Unrealised


Net unrealised





NetFair value


gross gains


gross losses


gains/(losses)


Tax effect


after tax m


 m


 m


 m


 m


 mDebt securitiesIrish Government securities


7,588



608



(1
)


607



(76
)


531Euro government securities


1,754



153



(4
)


149



(18
)


131Non Euro government securities


712



95







95



(12
)


83Supranational banks and government agencies


1,682



55







55



(7
)


48Collateralised mortgage obligations


22







(6
)


(6
)


1



(5
)Other asset backed securities


920



1



(140
)


(139
)


17



(122
)Euro bank securities


3,070



176



(11
)


165



(21
)


144Non Euro bank securities


161



3



(5
)


(2
)






(2
)Euro corporate securities


87



6



(3
)


3



(1
)


2Non Euro corporate securities


193



17







17



(4
)


13Other investments


12



















Total debt securities


16,201



1,114



(170
)


944



(121
)


823Equity securitiesEquity securities  NAMA subordinated bonds


47



















Equity securities  other


96



16



(10
)


6



(1
)


5Total financial investments available for sale


16,344



1,130



(180
)


950



(122
)


8282011Unrealised


Unrealised


Net unrealised





NetFair value


gross gains


gross losses


gains/(losses)


Tax effect


after tax m


 m


 m


 m


 m


 mDebt securitiesIrish Government securities


5,217



40



(531
)


(491
)


61



(430
)Euro government securities


1,860



102



(62
)


40



(5
)


35Non Euro government securities


1,270



207



(3
)


204



(40
)


164Supranational banks and government agencies


1,147



10



(1
)


9



(1
)


8Collateralised mortgage obligations


509







(12
)


(12
)


2



(10
)Other asset backed securities


1,210







(353
)


(353
)


44



(309
)Euro bank securities


3,055



43



(77
)


(34
)


4



(30
)Non Euro bank securities


476



4



(12
)


(8
)


1



(7
)Euro corporate securities


110



4



(6
)


(2
)






(2
)Non Euro corporate securities


279



15



(5
)


10



(2
)


8Other investments


12



















Total debt securities


15,145



425



(1,062
)


(637
)


64



(573
)Equity securitiesEquity securities  NAMA subordinated bonds


132



















Equity securities  other


112



18



(24
)


(6
)






(6
)Total financial investments available for sale


15,389



443



(1,086
)


(643
)


64



(579
)








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33 Financial investments available for sale(continued)  2012


2011Debt


Equity


Total


Debt


Equity


TotalAnalysis of movements in financial

securities


securities





securities


securitiesinvestments available for sale

 m


 m


 m


 m


 m


 mAt 1 January


15,145



244



15,389



20,511



314



20,825Acquisition of subsidiary














1,684
(1)


6



1,690Reclassification to disposal groups and non-current assets held for sale (note 25)






(18
)


(18)







(22
)


(22)Exchange translation adjustments


17







17



(24
)


(3
)


(27)Purchases


5,045



14



5,059



1,696



64



1,760Additions(2)


















19



19NAMA subordinated bonds  additions


















15



15Return of NAMA subordinated bonds






(3
)


(3)







(3
)


(3)Sales


(2,981
)


(28
)


(3,009)



(3,920
)


(67
)


(3,987)Maturities


(2,654
)






(2,654)



(4,902
)






(4,902)Provisions for impairment






(86
)


(86)



(164
)


(119
)


(283)Amortisation of discounts net of premiums


23







23



(8
)






(8)Movement in unrealised gains


1,606



20



1,626



272



40



312At 31 December


16,201



143



16,344



15,145



244



15,389Of which:Listed


16,189



58



16,247



15,133



54



15,187Unlisted


12



85



97



12



190



20216,201



143



16,344



15,145



244



15,389 (1)Excludes intercompany debt securities amounting
to  275 million which were eliminated on consolidation. (2)Additions relate to transfers from loans and receivables arising from debt/equity
restructures and other additions.  Debt securities analysed by remaining contractual maturity

2012
 m


2011  mDue within one year


1,243



2,276After one year, but within five years


8,610



6,645After five years, but within ten years


4,715



3,612After ten years


1,633



2,61216,201



15,145








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33 Financial investments available for sale(continued) The following table gives at 31 December 2012 and 31 December 2011, an analysis of the securities portfolio with unrealised losses, distinguishing between
securities with continuous unrealised loss positions of less than 12 months and those with continuous unrealised loss positions for periods in excess of 12 months.  Fair value


Unrealised lossesInvestments
with
unrealised losses
of less than
12 months


Investments
withunrealised lossesof more than
12 months


Total


Unrealisedlossesof lessthan 12 months


Unrealisedlossesof morethan12 months


Total m


 m


 m


 m


 m


 m2012Debt securitiesIrish Government securities




25



249



274







(1
)


(1)Euro government securities








188



188







(4
)


(4)Collateralised mortgage obligations








22



22







(6
)


(6)Other asset backed securities




1



909



910







(140
)


(140)Euro bank securities




148



294



442







(11
)


(11)Non Euro bank securities








42



42







(5
)


(5)Euro corporate securities




7



30



37







(3
)


(3)Non Euro corporate securities




11



8



19











Total debt securities




192



1,742



1,934







(170
)


(170)Equity securitiesEquity securities  NAMA subordinated bonds
























Equity securities  other




4



37



41



(8
)


(2
)


(10)Total




196



1,779



1,975



(8
)


(172
)


(180)Fair value


Unrealised lossesInvestments
with unrealised losses
of less than
12 months


Investments
withunrealised lossesof more than12 months


Total


Unrealisedlossesof less
than12 months


Unrealisedlossesof morethan12 months


Total m


 m


 m


 m


 m


 m2011Debt securitiesIrish Government securities




2,040



2,822



4,862



(192
)


(339
)


(531)Euro government securities








280



280







(62
)


(62)Non Euro government securities




23



9



32



(2
)


(1
)


(3)Supranational banks and government agencies




2



70



72







(1
)


(1)Collateralised mortgage obligations




355



149



504



(3
)


(9
)


(12)Other asset backed securities




191



1,013



1,204



(15
)


(338
)


(353)Euro bank securities




174



1,210



1,384



(3
)


(74
)


(77)Non Euro bank securities




194



53



247



(2
)


(10
)


(12)Euro corporate securities




18



42



60



(2
)


(4
)


(6)Non Euro corporate securities




35



35



70



(2
)


(3
)


(5)Total debt securities




3,032



5,683



8,715



(221
)


(841
)


(1,062)Equity securitiesEquity securities  NAMA subordinated bonds
























Equity securities  other




39



9



48



(21
)


(3
)


(24)Total




3,071



5,692



8,763



(242
)


(844
)


(1,086) Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2011:  164 million) and  86 million
(2011:  119 million) on equity securities have been recognised as set out in note 13.








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34  Interests in associated undertakings Included in the Group income statement is the contribution from investments in associated undertakings as follows:  Income statement

2012
 m


2011  m


2010  mShare of results of associated undertakings(1)(4)


15



(1
)


43(Impairment)/reversal of impairment of associated undertakings






(36
)


201Loss recognised on the remeasurement to fair value less costs to sell of disposal groups and non-current assets held for sale


(5
)






(50)Loss on the disposal of investment in associated undertakings










(231)10



(37
)


(37)Analysed as to:Continuing operations


10



(37
)


18Discontinued operations (note 18)(2)










(55)10



(37
)


(37)  Share of net assets including goodwill

2012 m


2011  mAt 1 January


246



301Exchange translation adjustments






1Disposal of associate held by subsidiary (note 18)






(18)Additions(3)


18



Designation of associate as an equity investment at fair value through profit or
loss(4)


(196
)


Income for the year:Continuing operations


15



(1)Dividends received from associates


(14
)


(5)Impairment on associated undertakings  Continuing operations


(5
)


(36)Other movements






4At 31 December


64



246Analysed as to:Aviva Life Holdings Ireland Limited(4)(note 35)






196Other(5)


64



5064



246Disclosed in the statement of financial position within:Interests in associated undertakings


52



50Disposal groups and non-current assets held for sale (note 25)


12



19664



246Of which listed on a recognised stock exchange






 (1)Includes Aviva Life Holdings Ireland Limited of
Nil (2011: 17 million loss (note 35)), AIB Merchant Services  14 million profit (2011:  13 million profit); and Other  1 million profit (2011:  3 million profit). (2)At 30 March 2010, the Group announced that certain of its operations were to
be sold, amongst which included M&T Bank Corporation. Subsequently, Bulgarian American Credit Bank AD (BACB) and associate interests held by BZWBK, were considered to be held for sale. These associates were no longer accounted for
using the equity method in accordance with IAS 28 Investment in Associatesas they were classified as discontinued operations. On 4 November 2010, the sale of M&T Bank Corporation was completed with the investment derecognised from
that date (note 18). The sale of BZWBK completed on 1 April 2011. The sale of BACB completed on 17 June 2011. (3)Additions (LaGuardia Hotel) relate to transfers from financial investments available for sale arising from debt/equity restructuring. (4)Aviva Life Holdings Ireland Limited was designated as an equity investment at
fair value through profit or loss with effect from 1 July 2012. No profit or loss arose on designation as it had been held at fair value (note 35). (5)Includes the Groups investments in Aviva Health Insurance Ireland Limited,
AIB Merchant Services and LaGuardia Hotel (31 December 2011: Aviva Health Insurance Ireland Limited and AIB Merchant Services).








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34 Interests in associated undertakings(continued) Summarised financial information for the Groups associates which are equity accounted is as follows: 2012 m


2011  mTotal assets


725



12,237Total liabilities


473



10,805Revenues


396



1,163Net profit


19



(9) In relation to associated undertakings at 31 December 2012, contingent liabilities amounted to Nil (2011: Nil) and commitments
amounted to Nil (2011: Nil).  Principal associated undertakings

Nature of businessZolter Services Limited (trades as AIB Merchant Services)

Provider of merchant payment solutionsRegistered office:        Unit 6, Belfield Business Park, Clonskeagh, Dublin 4,
Ireland. Aviva Life Holdings Ireland Limited(1) As set out in note 35, AIBs investment in Aviva Life Holdings Ireland Limited was designated as an equity investment at fair value through profit or loss with
effect from 1 July 2012. Prior to this, it had been accounted for as an associate undertaking. It continues to be held within disposal groups and non-current assets held for sale.   Other than as described above, the Groups interests in associated undertakings are non-credit institutions and are held by subsidiary undertakings. In accordance with the European Communities (Credit Institutions: Accounts) Regulations, 1992, Allied Irish Banks, p.l.c. will annex a full listing of associated
undertakings to its annual return to the Companies Registration Office. (1)The
Group interest is held directly by Allied Irish Banks, p.l.c. and is now carried at fair value through profit or loss in the parent company statement of financial position. This is now classified in disposal groups and non-current assets held
for sale. Details of Aviva Life Holdings Ireland Limited is set out in note 35.








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35 Interest in Aviva Life Holdings Ireland Limited At 31 December 2011, AIB considered that it was highly probable that its investment in Aviva Life Holdings Ireland Limited (ALH), an associated
undertaking, would be disposed of within twelve months following the cancellation in December 2011 of the distribution agreement between AIB and ALH and the conditions that existed in the shareholder agreement. Accordingly, ALH was classified as
held for sale and included within Disposal Groups and non-current assets held for sale (note 25). An impairment loss of  36 million on
remeasurement of the disposal group to the lower of its carrying amount and its fair value less costs to sell was recognised in associated undertakings in the consolidated income statement in 2011. Arising from the exercise, in January 2012, of put options held by AIB and Aviva and the subsequent protracted negotiations between the parties to finalise the sales
process of ALH and Ark Life respectively, it became increasingly obvious that AIB was no longer in the position to exercise significant influence over its investment in ALH. Accordingly, AIB designated its investment in ALH as an equity investment
at fair value through profit or loss with effect from 1 July 2012. There was no profit or loss recognised on the date of designation as the investment had been held at fair value. There was nil contribution from ALH in the six months to
30 June 2012. The sales process was not finalised at 31 December 2012, however, negotiations were at an advanced stage. The fair value of the investment
in ALH at 31 December 2012 of  196 million was determined by reference to the transaction price expected on the sale of the investment as this
represented the best evidence of its fair value. The mark to market of the related put options is negative  40 million (2011: negative  8 million) - note 6 and note 69. The
contribution of ALH for the years ended 31 December 2011 and 2010 is included within share of results of associated undertakings as follows:  2011 m


2010  mShare of (loss)/income of ALH


(12
)


4Impairment of associate


(36
)


Amortisation of intangible assets


(4
)


(6)Share of loss before taxation


(52
)


(2)Taxation attributable to policyholder returns


(1
)


Loss attributable to shareholders before taxation


(53
)


(2)Taxation


-



2Included within associated undertakings


(53
)


 In addition to the amounts included within share of results of associated undertakings, the Group recognised fee income on the sale of
ALH life insurance and investment products, through its distribution channels, amounting to  11 million for the year ended 31 December 2012
(2011:  23 million; 2010:  20 million). The assets and liabilities of ALH
at 31 December 2011, accounted for in accordance with the accounting policies of the Group, are set out in the following table:  Summary of consolidated statement of financial position

2011  mCash and placings with banks


1,906Financial investments


8,424Investment property


271Reinsurance assets


588Other assets


464Total assets


11,653Investment contract liabilities


5,605Insurance contract liabilities


4,364Other liabilities


498Shareholders equity


1,186Total liabilities and shareholders equity


11,653








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36 Intangible assets and goodwill  2012


2011Goodwill m


Software  m


Other m


Total   m


Goodwill  m


Software  m


Other m


Total  mCostAt 1 January






631



3



634



3



596



3



602Acquisition of subsidiary(1)






















75







75Disposal of subsidiary


















(3)



(1)







(4)Reclassification to disposal groups and non-current assets held for sale (note 25)






















(9)







(9)Additions  internally generated






62







62







27







27 externally purchased






9







9







6







6Amounts written off(2)






(13)







(13)







(47)







(47)Disposals






















(16)







(16)At 31 December






689



3



692







631



3



634Amortisation/impairmentAt 1 January






455



3



458



1



405



3



409Acquisition of subsidiary(1)






















54







54Disposal of subsidiary


















(1)



(1)







(2)Reclassification to disposal groups and non-current assets held for sale (note 25)






















(6)







(6)Amortisation for the year






58







58







63







63Impairment for the year






2







2







3







3Amounts written off(2)






(13)







(13)







(47)







(47)Disposals






















(16)







(16)At 31 December






502



3



505







455



3



458Net book value at 31 December






187







187







176







176 (1)Relates to the acquisition of EBS Limited
(EBS) (note 23). (2)Relates to assets which are no longer in use
with a nil carrying value. Internally generated intangible assets under construction amounted to:  45 million (2011:  30 million). Internally generated software
amounted to:  375 million (2011:  337 million).








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37 Property, plant and equipment Property


Equipment


TotalFreehold


Long leasehold


Leasehold under 50 years m


 m


 m


 m


 mCostAt 1 January 2012


190



103



153



484



930Reclassification to disposal groups and non-current assets held for sale


(2)















(2)Other reclassifications


1



(1)











Additions


2







9



26



37Disposals


(1)







(20)



(23)



(44)Amounts written off(1)










(2)



(2)



(4)Exchange translation adjustments


1







1



1



3At 31 December 2012


191



102



141



486



920Depreciation/impairmentAt 1 January 2012


53



27



101



389



570Reclassification to disposal groups and non-current assets held for sale


(1)















(1)Depreciation charge for the year


6



3



13



29



51Impairment for the year


9















9Disposals










(20)



(21)



(41)Amounts written off(1)










(2)



(2)



(4)Exchange translation adjustments


1







1



1



3At 31 December 2012


68



30



93



396



587Net book value at 31 December 2012


123



72



48



90



333CostAt 1 January 2011


158



90



135



479



862Acquisition of subsidiary(2)


30



10



19



23



82Disposal of subsidiaries














(2)



(2)Reclassification from/(to) disposal groups and non-current assets held for sale


1



3



(1)



(8)



(5)Additions






1



5



11



17Disposals






(1)



(6)



(21)



(28)Exchange translation adjustments


1







1



2



4At 31 December 2011


190



103



153



484



930Depreciation/impairmentAt 1 January 2011


40



22



82



370



514Acquisition of subsidiary(2)


7



3



13



17



40Disposal of subsidiaries














(1)



(1)Reclassification to disposal groups and non-current assets held for sale










(1)



(8)



(9)Depreciation charge for the year


6



3



10



30



49Disposals






(1)



(4)



(20)



(25)Exchange translation adjustments










1



1



2At 31 December 2011


53



27



101



389



570Net book value at 31 December 2011


137



76



52



95



360 (1)Relates to assets which are no longer in use with
a Nil carrying value. (2)Relates to the acquisition of EBS Limited
(EBS) (note 23). The net book value of property occupied by the Group for its own activities was  240 million (2011:  263 million), excluding those held as disposal groups and non-current assets held for sale. Property leased to others by AIB Group
had a book value of  2 million (2011:  2 million). Property and
equipment includes  2 million for items in the course of construction (2011: Nil).








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38  Deferred taxation

2012
 m


2011  mDeferred tax assets:Provision for impairment of loans and receivables


3



4Available for sale securities






148Retirement benefits


106



93Temporary difference on provisions for future commitments in relation to the funding of Icarom plc (under Administration)






1Assets leased to customers


17



20Unutilised tax losses


3,904



3,707Other


32



Total gross deferred tax assets


4,062



3,973Deferred tax liabilities:Cash flow hedges


(5
)


(28)Amortised income on loans


(149
)


(204)Assets used in business


(24
)


(16)Available for sale securities


(24
)


Other






(33)Total gross deferred tax liabilities


(202
)


(281)Net deferred tax assets


3,860



3,692Represented on the balance sheet as follows:Deferred tax assets


3,860



3,692 For each of the years ended 31 December 2012 and 2011, full provision has been made for capital allowances and other temporary
differences.  Analysis of movements in deferred taxation

2012
 m


2011  mAt 1 January


3,692



2,384Acquisition of subsidiary (note 23)






148Exchange translation and other adjustments


18



23Deferred tax through other comprehensive income


(33
)


(11)Income statement (note 17)


183



1,148At 31 December


3,860



3,692 Comments on the basis of recognition of deferred tax assets on unused tax losses are included in Critical accounting policies and
estimates on pages 46 and 47. Comments on the prospective regulatory capital treatment of deferred tax assets are included in Risk factors on page 63. At 31 December 2012 recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled  3,860 million (2011:  3,692 million). The most significant tax losses arise in the Irish tax jurisdiction and
their utilisation is dependent on future taxable profits. Temporary differences recognised in other comprehensive income consist of deferred tax on available for
sale securities, cash flow hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of provision for impairment of loans and receivables, amortised income, assets leased to
customers, and assets used in the course of business. Net deferred tax assets of
 3,854 million (2011:  3,692 million) are expected to be recovered after more than 12 months. For AIBs principal UK subsidiary, the Group has concluded that the recognition of deferred tax assets be limited to the amount projected to be realised within a
time period of 15 years. This is the timescale within which the Group believes that it can asses the likelihood of its profits arising as being more likely than not. For certain other subsidiaries and branches, the Group has concluded that it is
more likely than not that there will be insufficient profits to support full recognition of deferred tax assets.








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38 Deferred taxation(continued) As a result, the Group has not recognised deferred tax assets in respect of unused tax losses of
 1,848 million (2011:  556 million) in Ireland, the United Kingdom and the United States of America and
foreign tax credits, for Irish tax purposes, of  4 million (2011: Nil). Of the tax losses of  1,848 million for which no deferred tax is recognised,  41 million expire in 2031,  58 million expire in 2032 and the remainder have no expiry date. The aggregate amount of temporary differences associated with investments in subsidiaries, branches and associates for which deferred tax liabilities have not been
recognised amounted to Nil (2011: Nil). The net deferred tax asset on items recognised directly in other comprehensive income amounted to  64 million (2011:  198 million). Analysis of income tax relating to other comprehensive income  2012Gross


Tax


Net of tax


Net amount attributable to owners of the parent m



m



m



mLoss for the year


(3,830
)


183



(3,647
)


(3,647)Exchange translation adjustments


34







34



34Net change in cash flow hedge reserve


(185
)


23



(162
)


(162)Net change in fair value of available for sale securities


1,467



(172
)


1,295



1,295Net actuarial gains in retirement benefit schemes


(858
)


118



(740
)


(740)Net change in property revaluation reserve






(2
)


(2
)


(2)Total comprehensive income for the year


(3,372
)


150



(3,222
)


(3,222)Attributable to:Owners of the parent


(3,372
)


150



(3,222
)


(3,222)  2011Gross


Tax


Net of tax


Non-controllinginterestsnet of tax


Net amount attributable to owners of the parentContinuing operations

 m


 m


 m


 m


 mLoss for the year


(5,108
)


1,188



(3,920
)






(3,920)Exchange translation adjustments


(11
)






(11
)






(11)Net change in cash flow hedge reserve


(242
)


33



(209
)






(209)Net change in fair value of available for sale securities


145



(33
)


112







112Net actuarial losses in retirement benefit schemes


(534
)


70



(464
)






(464)Recognised gains in associated undertakings


4







4







4Total comprehensive income for the year


(5,746
)


1,258



(4,488
)






(4,488)Attributable to:Owners of the parent


(5,746
)


1,258



(4,488
)






(4,488)Discontinued operationsProfit for the year


1,645



(17
)


1,628



20



1,608Exchange translation adjustments


(134
)






(134
)


(5
)


(129)Net change in cash flow hedge reserve


1







1







1Net change in fair value of available for sale securities


(99
)


25



(74
)


(3
)


(71)Total comprehensive income for the year


1,413



8



1,421



12



1,409Attributable to:Owners of the parent


1,401



8



1,409







1,409Non-controlling interests


12







12



12



1,413



8



1,421



12



1,409








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38 Deferred taxation(continued) Analysis of income tax relating to other comprehensive income  2010Gross


Tax


Net of tax


Non-controllinginterestsnet of tax


Net amountattributableto owners ofthe parentContinuing operations

 m


 m


 m


 m


 mLoss for the year


(12,071
)


1,710



(10,361
)






(10,361
)Exchange translation adjustments


89







89







89Net change in cash flow hedge reserve


(48
)


7



(41
)






(41
)Net change in fair value of available for sale securities


(957
)


144



(813
)






(813
)Net actuarial gains in retirement benefit schemes


3



(2
)


1







1Recognised losses in associated undertakings


(13
)






(13
)






(13
)Total comprehensive income for the year


(12,997
)


1,859



(11,138
)






(11,138
)Attributable to:Owners of the parent


(12,997
)


1,859



(11,138
)






(11,138
)Non-controlling interests


















(12,997
)


1,859



(11,138
)






(11,138
)Discontinued operationsProfit for the year


271



(72
)


199



70



129Exchange translation adjustments


50







50



14



36Net change in fair value of available for sale securities


4



(1
)


3



1



2Recognised gains in associated undertakings


218







218







218Total comprehensive income for the year


543



(73
)


470



85



385Attributable to:Owners of the parent


458



(73
)


385







385Non-controlling interests


85







85



85



543



(73
)


470



85



385








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39 Deposits by central banks and banks



2012
 m






2011  mCentral banksSecurities sold under agreements to repurchase




22,220







30,831Other borrowings












30222,220







31,133BanksSecurities sold under agreements to repurchase




5,636







5,048Other borrowings




586







7096,222







5,75728,442







36,890Of which:Domestic offices




28,113







36,166Foreign offices




329







72428,442







36,890Amounts include:Due to associated undertakings












 Securities sold under agreements to repurchase (note 55), all of which mature within six months, (with the exception of  11.25 billion (2011:  3 billion) funded through the ECB three year Long Term Refinancing Operation
(LTRO)) are secured by Irish Government bonds, NAMA senior bonds, other marketable securities and eligible assets. The Group has securitised certain of its mortgage and loan portfolios as outlined below in relation to AIB Mortgage Bank
and EBS Mortgage Finance. These securities, other than issued to external investors, have been pledged as collateral in addition to other securities held by the Group. Allied Irish Banks, p.l.c. has granted a floating charge over certain residential mortgage pools, the drawings against which were
 90 million at 31 December 2012 (2011: Nil). A subsidiary of
Allied Irish Banks, p.l.c. has also granted a floating charge over certain residential mortgage pools, the drawings against which were Nil at 31 December 2012 (2011: Nil). Deposits by central banks and banks include cash collateral of 
321 million (2011:  576 million) received from derivative counterparties in relation to net derivative positions (note 27). Financial assets pledged under existing agreements to repurchase, and providing access to future funding facilities with central banks and banks are detailed in the
following table:  2012


2011Centralbanks


Banks


Total


Centralbanks


Banks


Total m


 m


 m


 m


 m


 mTotal carrying value of financial assets pledged


25,720



6,295



32,015



36,944



5,678



42,622Of which:Government securities(1)


14,887



4,152



19,039



17,868



3,082



20,950Other securities


10,833



2,143



12,976



19,076



2,596



21,672 (1)Includes NAMA senior bonds.








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40  Customer accounts



2012
 m






2011  mCurrent accounts




16,366







15,530Demand deposits




9,460







9,828Time deposits




37,784
(1)






35,31663,610







60,674Of which:Non-interest bearing current accountsDomestic offices




11,633







10,147Foreign offices




2,053







1,765Interest bearing deposits, current accounts and short-term borrowingsDomestic offices




39,889







37,457Foreign offices




10,035







11,30563,610







60,674Amounts include:Due to related party(2)




1,270







1,381 (1)Includes securities sold under agreements to
repurchase amounting to  94 million (2011: Nil). The Group pledged non-government available for sale securities with a fair value of  105 million as collateral for these facilities. (2)These amounts were substantially due to a subsidiary of ALH, and whilst the investment in ALH amounted to 24.99% of the ordinary share capital, it was accounted for as an equity investment at fair
value through profit or loss with effect from 1 July 2012 (note 35).








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41  Debt securities in issue



2012
 m






2011  mBonds and medium term notes:European medium term note programme




6,268







10,740Bonds and other medium term notes




4,363







4,64310,631







15,383Other debt securities in issue:Commercial certificates of deposit




35







27110,666







15,65442 Other liabilities



2012
 m






2011  mNotes in circulation




467







458Items in transit




157







171Creditors




8







5Future commitments in relation to the funding of Icarom(1)












11Fair value of hedged liability positions




565







507Other




430







3821,627







1,534 (1)Obligations to Icarom were fully satisfied at
31 December 2012.








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43 Provisions for liabilities and commitments Voluntary severance programme On 8 March 2012, AIB announced a voluntary
severance programme which includes both an early retirement scheme and a voluntary severance scheme. The objective of the programme is to reduce the Groups cost base. It is expected that staff numbers will reduce by at least 2,500 following
full implementation which is expected to complete by December 2013. On 21 May 2012, AIB announced the specific terms of both the voluntary severance and early
retirement schemes. Staff who were eligible for early retirement were required to apply for consideration by 20 June 2012. Successful applicants have been
scheduled to depart throughout 2012 and 2013 with a significant number having already left the Group. It is expected that a large majority of those staff who have been offered and scheduled for a 2013 departure will accept the offer. Accordingly,
the Group expects that total past service costs arising under the terms of the early retirement scheme will ultimately amount to  182 million, based
on current best estimates (note 12). This provision is included within pension scheme liabilities. AIB estimates that the cost of offering the voluntary severance
scheme to eligible employees will amount to  140 million of which  39 million had been utilised at
31 December 2012. Since AIB is demonstrably committed to the scheme, a provision has been made amounting to  101 million at 31 December 2012 which is based on managements best
estimate of the amount required to settle the additional costs expected to arise from the scheme. The estimate is based on experience to date in relation to in scope staff who have already opted to apply and the acceptance level of
successful applicants. These provisions, totalling  322 million,
have been netted with a curtailment gain of  29 million and included in termination benefits under administrative expenses (note 10) in the income statement. In addition, an amount of  7 million has also been provided in respect
of termination benefits payable on the winding down of AIBs interests, principally, in the Isle of Man/Channel Islands.








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43 Provisions for liabilities and commitments(continued)  31 December 2012Liabilitiesandcharges


NAMA(1)
constructiveobligation


NAMA(2)
provisions


Onerous(3)
contracts


Legal claims


Other(4)
provisions


Voluntaryseverancescheme


Total m


 m


 m


 m


 m


 m


 m


 mAt 1 January


24







407



13



10



60







514Transfers out


(8
)


























(8)Exchange translation adjustments










2











1







3Amounts charged to income statement


10
(5)






19
(2)


16



4



121



147



317Amounts released to income statement


(1
)(5)






(155
)(2)


(1
)


(4
)


(7
)






(168)Provisions utilised


(4
)






(242
)


(1
)


(1
)


(19
)


(39
)


(306)At 31 December


21







31



27



9



156



108



35231 December 2011Liabilitiesand
charges



NAMAconstructive obligation
(1)


NAMAprovisions
(2)


Onerouscontracts
(3)


Legalclaims



Otherprovisions
(4)


Total m


 m


 m


 m


 m


 m


 mAt 1 January


17



1,026







7



5



86



1,141Acquisition of subsidiary(6)














2



1



11



14Exchange translation adjustments






(6
)


4



1







1



Amounts charged to income statement


17







403



5



6



52



483Amounts released to income statement






(433
)






(2
)


(1
)


(54
)


(490)Provisions utilised


(10
)


(587
)






-



(1
)


(36
)


(634)At 31 December


24







407



13



10



60



514 The total provisions for liabilities and commitments expected to be settled within one year amount to  289 million (2011:  464 million). (1)At 31 December 2010, the transfer in 2011 of certain loans to NAMA at a
discount was deemed unavoidable, accordingly a provision of  1,026 million being a constructive obligation was made for the expected discount. (2)NAMA provisions represent amounts due to NAMA in respect of adjustments to
transfers which had not been settled at 31 December 2011. At 31 December 2012,  155 million of this provision was released to the
income statement. This followed the resolution with NAMA of certain issues relating to transfers which had taken place in earlier periods. In addition,  19 million was charged to the income
statement in respect of Section 93 claims i.e. new claims under the NAMA Act. (3)Provisions for the unavoidable costs expected to arise from branch closures. (4)Includes provisions for refunds to customers in respect of payment protection
insurance in both Ireland and the UK (total  52 million), interest rate hedge products in the UK (
49 million), restructuring and reorganisation costs. (5)Included in
charge/(writeback) of provisions for liabilities and commitments in income statement. (6)Relates to the acquisition of EBS (note 23).








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44 Subordinated liabilities and other capital instruments

Notes



2012
 m






2011  mAllied Irish Banks, p.l.c. 1.6bn Contingent Capital Tier 2 Notes due
2016Proceeds of issue






1,600







1,600Fair value adjustment on initial recognition






(447
)






(447)Amortisation to date






84







24(a)




1,237







1,177Dated loan capital European Medium Term Note Programme: 500m Callable Step-up Floating Rate Notes due
October 2017 (maturity extended to 2035 as a result of the SLO)

(b)




7







7Stg£ 368m 12.5% Subordinated Notes due June 2019 (maturity extended to 2035 as a result of the SLO)

(c)




27







25Stg£ 500m Callable Fixed/Floating Rate Notes due March 2025 (maturity extended to 2035 as a result of the SLO)

(d)












34







321,271







1,209Maturity of dated loan capital





2012
 m






2011  mDated loan capital outstanding is repayable:In 5 years or more






34







32 Following on the liability management exercises in 2011 and the SLO in April 2011, residual balances remained outstanding on the dated
loan capital instruments above. The SLO, which was effective from 22 April 2011, changed the terms of all outstanding instruments. The original liabilities were derecognised and new liabilities were recognised, with their initial measurement based
on the fair value at the SLO effective date. The contractual maturity date changed to 2035 as a result of the SLO, with coupons to be payable at the option of AIB (note7).  1.6bn Contingent Capital Tier 2 Notes due 2016 (a)
On 26 July 2011, AIB issued  1.6 billion in nominal value of Contingent Capital Tier 2 Notes (CCNs) to the
Minister for Finance of Ireland (the Minister) for cash consideration of  1.6 billion. The fair value of these notes at initial recognition was 
1,153 million with  447 million being accounted for as a capital contribution from the Minister (note 49). Interest is payable annually in arrears on the nominal value of the notes at a fixed
rate of 10% per annum. The interest rate may increase up to 18% at the behest of the Minister but with effect only from the date that the CCNs are sold to a third party external to a State entity. The notes are due to mature on 28 July
2016. The CCNs are unsecured and subordinated obligations of AIB. They rank: (i)
junior to the claims of all holders of unsubordinated obligations of AIB; (ii)
pari passu with the claims of holders of all other subordinated obligations of AIB which qualify as consolidated Tier 2 capital of the Group for regulatory capital purposes or which rank, or are expressed to rank, pari
passu with the CCNs; and (iii)
senior to the claims of holders of all other subordinated obligations of AIB which rank junior to the CCNs including any subordinated obligations of AIB which qualify as Tier 1 capital of the Group for regulatory
purposes. While the CCNs are outstanding, if the Core Tier 1 capital ratio (the CET Ratio after the CRD IV implementation date) falls below the
Trigger ratio of 8.25%, the CCNs are immediately and mandatorily redeemable and will convert to ordinary shares of AIB at a conversion price of 
0.01 per share.








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44 Subordinated liabilities and other capital instruments(continued) Dated loan capital The dated loan capital in this section issued under the
European Medium Term Note Programme is subordinated in right of payment to the ordinary creditors, including depositors, of the Group. During 2010, the Group
redeemed certain of these capital instruments, and in 2011, all outstanding amounts were either purchased for cash or derecognised following a Subordinated Liabilities Order (SLO), details of which are set out in note 63(g). Residual balances remained outstanding on the instruments set out below following redemption/derecognition as follows: (b)
In relation to the  500 million Callable Subordinated Step-Up Floating Rate Notes, the Group redeemed  332.5 million of these in March 2010, leaving  167.5 million outstanding. Of this outstanding amount, 
142 million was purchased for cash during 2011 with the remainder being derecognised following the introduction of the SLO. A new instrument was subsequently recognised and measured at a fair value of
 7 million (note 7).  (c)
Of the Stg£ 368 million Subordinated Notes, Stg£ 289 million was purchased for cash during 2011 with the remainder, amounting to Stg£ 79 million, being derecognised following the
introduction of the SLO. A new instrument was subsequently recognised and measured at a fair value of Stg£ 20 million (note 7).  (d)
The Stg£ 500 million Subordinated Callable Fixed/Floating Rate Notes were partially redeemed (Stg£ 481 million) in March 2010, leaving Stg£ 19 million outstanding. Of this outstanding amount,
Stg£ 18 million was purchased for cash during 2011, with the remainder amounting to Stg£ 1 million being derecognised following the introduction of the SLO. A new instrument was subsequently recognised and measured at a fair
value of Stg£ 0.3 million (note 7).








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45 Share capital Authorised







Issued2012
m


2011
m




2012
m


2011
mOrdinary share capitalOrdinary shares of  0.01 each


702,000.0



702,000.0





517,152.8



513,528.8Preference share capital2009 Non cumulative preference shares of  0.01
each


3,500.0



3,500.0





3,500.0



3,500.0Deferred share capitalDeferred shares of  0.01 each


403,775.2



403,775.2









 Ordinary share capital/share premium 2012 (i)
On 1 May 2012, the Irish High Court confirmed an application by AIB for a reduction of the share premium account by 
2,000 million in addition to a reduction of  3,958 million of its capital redemption reserves (note 50). This resulted in a transfer from these reserve accounts to revenue reserves. (ii)
On 14 May 2012, arising from the non-payment of dividend amounting to  280 million on the 2009 Preference Shares,
the National Pensions Reserve Fund Commission (NPRFC) became entitled to bonus shares in lieu and the Company issued 3,623,969,972 new ordinary shares of  0.01 each by way of a bonus issue to
the NPRFC in settlement of the dividend. In accordance with the Companys Articles of Association, an amount of  36 million, equal to the nominal value of the shares issued, was transferred from
share premium to ordinary share capital. 2011 (i)
On 31 March 2011, following completion of the Central Bank of Irelands Prudential Capital Assessment Review and the Prudential Liquidity Assessment Review, the Central Bank of Ireland announced the
requirement for the Company to raise equity capital of  9.1 billion in addition to the requirement of approximately
 4.2 billion deferred from February 2011, bringing the total capital which AIB would be required to raise to  13.3 billion. (ii)
On 1 April 2011, the company completed the sale of its stake in Bank Zachodni WBK S.A., following which on 7 April 2011, the NPRFC issued a Conversion Order to convert all of its CNV Shares (total shares
10,489,899,564 ( 3,357 million)) into ordinary shares. The conversion was completed on 8 April 2011. (iii)
On 13 May 2011, arising from the non-payment of dividend amounting to  280 million on the 2009 Preference Shares,
the NPRFC became entitled to bonus shares in lieu and the Company issued 484,902,878 new ordinary shares by way of a bonus issue to the NPRFC in part settlement of the dividend. In accordance with the Companys Articles of Association, an
amount of  155 million, equal to the nominal value of the shares issued, was transferred from share premium to ordinary share capital. The remainder of the bonus shares due to the NPRFC of
762,370,687 were issued to the NPRFC following the required approvals by the shareholders at the Extraordinary General Meeting (EGM) on the 26 July 2011. This issue included an additional 38,118,535 shares being prescribed by the
Companys Articles of Association as a result of the 2011 annual cash dividend not being satisfied in full on the due date. This issue of shares resulted in  8 million (the nominal value of the
shares issued was  0.01 each per share) being transferred from share premium to ordinary share capital. (iv)
On 26 July 2011, following the passing of shareholder resolutions at the EGM: 

the ordinary shares of the Company were renominalised, each ordinary share of  0.32 was subdivided into one ordinary share of
 0.01 each carrying the same rights and obligations as an existing ordinary share and thirty one deferred shares of  0.01. The deferred shares created on the
renominalisation had no voting or dividend rights and had no economic value; 

the Company acquired all of the deferred shares for nil consideration and immediately cancelled them in accordance with its Articles of Association adopted at the EGM which resulted in  3,958 million transferring from share capital to a capital redemption reserve fund; and 

all of the authorised but unissued preference shares denominated in Euro, sterling, US dollars and yen (other than the 2009 Preference Shares),were cancelled. (v)
On 27 July 2011, the Company issued 500 billion ordinary shares of  0.01 each to the NPRFC at a subscription price of  0.01 per share ( 5 billion in total) as part of the capital raising transaction agreed with the Irish Government.








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45 Share capital(continued) Preference share capital - 2009 Preference Shares On 13 May 2009, in
implementing the Governments recapitalisation of AIB, the Company issued: (i)  3.5 billion of core tier 1 securities in the form of
non-cumulative redeemable preference shares (the 2009 Preference Shares) and (ii) 294,251,819 warrants over ordinary shares (the 2009 Warrants), to the NPRFC for an aggregate subscription price of  3.5 billion. The Governments national pensions reserve fund, is controlled by the NPRFC and managed by the National Treasury Management Agency (NTMA). The 2009 Preference Shares carry a fixed non cumulative dividend at a rate of 8% per annum, payable annually in arrears at the discretion of AIB. If a cash dividend
is not paid, AIB must issue bonus ordinary shares to the holders of the 2009 Preference Shares by capitalising its reserves. The issue of bonus shares can be deferred by AIB, but the holders of 2009 Preference Shares will acquire voting rights at
general meetings of AIB equivalent to the voting rights that would have attached to the bonus shares if they had been issued. The dividend may not be deferred beyond the date on which AIB (a) pays a cash dividend on the 2009 Preference Shares
or on the ordinary shares; or (b) redeems or purchases any of the 2009 Preference Shares, or ordinary shares. Arising from this provision, AIB issued ordinary shares in lieu of dividend due to the NPRFC in 2010, in 2011 and on 14 May 2012.
In accordance with the Companys Articles of Association, an amount of  36 million (2011:  163
million), equal to the nominal value of the shares issued, was transferred from the share premium to the ordinary share capital account (see below). The 2009
Preference Shares may be purchased or redeemed at the option of AIB, in whole or in part, from distributable profits and/or the proceeds of an issue of shares constituting core tier 1 capital, for the first five years after the date of issue for the
subscription price of  1.00 per share and thereafter at redemption or purchase price of 125 per cent. of the subscription price, subject at all
times to the consent of the Central Bank of Ireland. The 2009 Preference Shares give the Minister the right, while any such preference shares are outstanding, to
appoint directly 25 per cent. of the directors of AIB and has voting rights equal to 25 per cent. of all votes capable of being cast by shareholders on a poll at a general meeting of the Company on shareholder resolutions relating to: (i)
the appointment, reappointment or removal of Directors; and (ii)
a change of control of AIB or a sale of all or substantially all of its business. In relation to item (i) above, the 25 per cent. voting rights entitlement is inclusive of the voting rights of all Government
entities in respect of any ordinary shares they may hold. To the extent that the NPRFC holds ordinary shares, it is not restricted from exercising its
voting rights in respect of such ordinary shares at a general meeting of the Company. The 2009 Preference Shares are freely transferable in minimum lots of 50,000
shares. However, the voting rights attaching to the 2009 Preference Shares, the right to appoint directors to the board of AIB and the veto over certain share capital-related resolutions are not transferable, as those rights are exercisable only by
a Government Preference Shareholder.








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45 Share capital(continued) The following tables show the movements in share capital in the statement of financial position during the year:  Issued share capital

2012  m

2011  mAt 1 January

5,170

3,965Ordinary shares in lieu of dividend on 2009 Preference Shares

36

163CNV shares converted to ordinary shares



(3,357)Ordinary shares issued on conversion of CNV shares



3,357Ordinary shares of  0.32 each
renominalised



(4,085)Ordinary shares of  0.01 each arising on
renominalisation



127Deferred shares of  0.01 each arising on
renominalisation



3,958Cancellation of deferred shares



(3,958)Ordinary shares issued to the NPRFC



5,000At 31 December

5,206

5,170Of which:Ordinary shares

5,171

5,1352009 Preference shares

35

355,206

5,170Share premium

2012  m

2011  mAt 1 January

4,926

5,089Transfer to ordinary share capital in respect of ordinary shares issued in lieu of dividend on 2009 Preference Shares

(36)

(163)Reduction and transfer to revenue reserves

(2,000)

-At 31 December

2,890

4,926Structure of the Companys share capital as at 31 December 2012

Authorised
share capital %

Issued share capital
%Class of shareOrdinary share capital

63.3

99.32009 Preference Shares

0.3

0.7Deferred shares

36.4

The following table shows the Groups capital resources at 31 December 2012 and 31 December 2011:Capital resources

2012  m

2011  mShareholders equity

11,241

14,463Contingent capital notes (note 44)

1,237

1,177Dated capital notes (note 44)

34

32Total capital resources

12,512

15,672








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46 Analysis of selected other comprehensive income  2012










2011










2010Continuing operations

Gross
 m


Tax
 m


Net
 m




Gross  m


Tax m


Net  m




Gross  m


Tax m


Net  mForeign currency translation reservesChange in foreign currency translation reserves


34







34





(11
)






(11)





89







89Total


34







34





(11
)






(11)





89







89Cash flow hedging reservesFair value (gains) transferred to income statement


(87
)


10



(77)





(115
)


14



(101)





(403
)


52



(351)Fair value (losses)/gains taken to other comprehensive income


(98
)


13



(85)





(127
)


19



(108)





355



(45
)


310Total


(185
)


23



(162)





(242
)


33



(209)





(48
)


7



(41)Available for sale securities reservesFair value losses/(gains) transferred to income statement


55



7



62





443



(54
)


389





(15
)


5



(10)Fair value gains/(losses) taken to other comprehensive income


1,412



(179
)


1,233





(298
)


21



(277)





(942
)


139



(803)Total


1,467



(172
)


1,295





145



(33
)


112





(957
)


144



(813)2012










2011










2010Discontinued operations

Gross m


Tax m


Net
 m




Gross m


Taxm


Net  m




Gross m


Taxm


Net  mForeign currency translation reservesTransferred to income statement on disposal of foreign operation
















(106
)






(106)













Change in foreign currency translation reserves
















(28
)






(28)





50







50Total
















(134
)






(134)





50







50Cash flow hedging reservesFair value losses transferred to income statement
















4



(1
)


3





29



(6
)


23Fair value (losses) taken to other comprehensive income
















(3
)


1



(2)





(29
)


6



(23)Total
















1







1













Available for sale securities reservesFair value (gains) transferred to income statement
















(82
)


16



(66)





(2
)






(2)Fair value (losses)/gains taken to other comprehensive income
















(17
)


9



(8)





6



(1
)


5Total
















(99
)


25



(74)





4



(1
)


3








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46 Analysis of selected other comprehensive income(continued) Analysis of total comprehensive income included within statement of changes in equity  2012Revenue reservesRevaluationreserves


Availablefor salesecuritiesreserves


Cash flowhedgingreserves


Net actuarialgains/(losses)in retirementbenefit


Otherrevenuereserves


Foreigncurrencytranslationreserves


Total m


 m


schemes
 m


 m


 m


 m


 mParent and subsidiaries


(2
)


1,295



(162
)


(740
)


(3,647
)


34



(3,222)Associated undertakings


























Total


(2
)


1,295



(162
)


(740
)


(3,647
)


34



(3,222)Non-controlling interests


























Attributable to equity holders of the parent


(2
)


1,295



(162
)


(740
)


(3,647
)


34



(3,222)2011Revenue reservesRevaluationreserves


Availablefor salesecuritiesreserves


Cash flowhedgingreserves


Net actuarialgains/(losses)in retirementbenefit


Otherrevenuereserves


Foreigncurrencytranslationreserves


Total m


 m


schemes m


 m


 m


 m


 mParent and subsidiaries






38



(208
)


(464
)


(2,292
)


(145
)


(3,071)Associated undertakings














4











4Total






38



(208
)


(460
)


(2,292
)


(145
)


(3,067)Non-controlling interests






3











(20
)


5



(12)Attributable to equity holders of the parent






41



(208
)


(460
)


(2,312
)


(140
)


(3,079)








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47 Own shares Ordinary shares
previously purchased under shareholder authority and held as Treasury Shares are as follows:  Treasury shares

2012




2011At 31 December


35,680,114





35,680,114 Since 2008, the company has not reissued any ordinary shares from its pool of Treasury Shares. Employee share schemes and trusts The Group sponsors a number of employee
share plans whereby purchases of shares are made in the open market to satisfy commitments under the schemes. At 31 December 2012, 1.5 million shares
(2011: 2.6 million) were held by trustees with a book value of  23 million (2011:  25.6 million), and a
market value of  0.1 million (2011:  0.2 million). The book value is deducted from revenue reserves while the shares continue to be held by the Group. The Group sponsors SAYE schemes for eligible employees in the UK, the Isle of Man and Channel Islands. The trustees of the schemes have borrowed funds from Group
companies, interest free, to enable them to purchase Allied Irish Banks, p.l.c. ordinary shares in the open market. These shares are used to satisfy commitments arising under the schemes. The cost of providing these shares is charged to the income
statement on a systematic basis over the period that the employees are expected to benefit. At 31 December 2012, 1.5 million shares (2011: 1.5 million) were held by the trustees with a book value of
 22.9 million (2011:  23.1 million) and a market value of 
0.1 million (2011:  0.2 million). The book value is deducted from revenue reserves. In 2001, the AIB Group
Employee Share Trust was established to satisfy commitments arising under the AIB Group Long-Term Incentive Plan (LTIP). Funds were provided to the trustees to enable them to purchase Allied Irish Banks, p.l.c. ordinary shares in the
open market. The trustees have waived their entitlement to dividends. At 31 December 2012, 0.01 million shares (2011: 0.01 million shares) were held by the trustees with a book value of  0.1 million (2011:  0.1 million) and a market value of  0.001 million (2011:  0.002 million). At 31 December 2012, Nil (2011: 1.2 million) ordinary shares were held by the trust with a cost of Nil
(2011:  2.4 million) and a market value of Nil (2011:Nil) in relation to the Allfirst Stock Option
Plans.(1) (1)Prior to its
disposal to M&T Bank Corporation, Allfirst Financial, Inc. sponsored the Allfirst Stock Option Plans, for the benefit of key employees of Allfirst. 48 Other
equity interests  Reserve capital instruments (RCI)

2011 mAt 1 January


239Redemption of RCI (note 7)


(239
)At 31 December 2011


 RCIs At 1 January 2011,  239 million remained outstanding on RCIs following the redemption in June 2009 of  258 million of the
RCI. The outstanding amount of  239 million was purchased in full for cash in June 2011 at a discount of 90.4% to nominal value resulting in a gain of 
216 million which was recognised in equity. The coupon, which was due to be paid on the RCI on 28 February 2011, was not paid.








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49 Capital reserves 2012






2011Capitalcontributionreserves




Othercapitalreserves




Total








Capitalcontributionreserves




Othercapitalreserves




Total m




 m




 m








 m




 m




 mAt 1 January




2,632





253





2,885















253





253Capital contributionsAnglo business transfer (note 22)


























1,498











1,498EBS acquisition (note 23)


























777











777CCNs issuance (note 44)


























447











447





















2,722











2,722Transfer to revenue reserves:Anglo business transfer




(187
)










(187
)








(66)











(66
)CCNs issuance (note 44)




(60
)










(60
)








(24)











(24
)(247
)










(247
)








(90)











(90
)At 31 December




2,385





253





2,638









2,632





253





2,885 The capital contributions are initially non-distributable but may become distributable as outlined in accounting policy number 28. The
transfers to revenue reserves relate to the capital contributions being deemed distributable. In addition to the capital contributions above, in 2011 AIB also
received capital contributions in cash amounting to  6,054 million which are included in revenue reserves (note 51). 50  Capital redemption reserves On 26 July 2011, the ordinary
shares of Allied Irish Banks, p.l.c. were renominalised which resulted in the creation of ordinary shares of  0.01 each, totalling  127 million and deferred shares of  0.01 each, totalling  3,958 million. The deferred shares were acquired by AIB
for Nil consideration and immediately cancelled which resulted in  3,958 million transferring from share capital to capital redemption reserves (note 45). On 1 May 2012, the Irish High Court confirmed an application by AIB for a reduction of its capital redemption reserve fund, accordingly,  3,958 million was transferred to revenue reserves from this account. 51 Contributions from the Minister for Finance and the NPRFC On 28 July
2011, the Minister for Finance (the Minister) and the NPRFC agreed to contribute  2,283 million and
 3,771 million respectively (total  6,054 million) as capital contributions to AIB for Nil consideration. These capital contributions constitute core
tier 1 capital for regulatory purposes and are included within Revenue reserves. Neither the Minister nor the NPRFC has an entitlement to seek repayment of these capital contributions.  52 Non-controlling interests in subsidiaries



2011  mEquity interest in subsidiariesAt 1 January




501Movement during the year




12Extinguishment of equity interests




(513)At 31 December




Non-cumulative Perpetual Preferred Securities (LPI)At 1 January




189Purchase of Non-cumulative Perpetual Preferred Securities




(189)At 31 December




 Equity interests in subsidiaries On
1 April 2011, AIB disposed of its 70.36% shareholding in BZWBK (note 18). Non-cumulative Perpetual Preferred Securities At 1 January 2011,  189 million remained outstanding following the
redemption in June 2009 of  801 million of the Preferred Securities. In June 2011 the remaining outstanding amount was purchased in full for cash (note 7).








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53 Memorandum items: contingent liabilities and commitments, and contingent assets In the normal course of business, the Group is a party to financial instruments with off-balance sheet risk to meet the financing needs of customers. These instruments involve, to varying degrees, elements of credit risk which are not reflected in the consolidated statement of financial position. Credit risk is
defined as the possibility of sustaining a loss because the other party to a financial instrument fails to perform in accordance with the terms of the contract. The
Groups maximum exposure to credit loss under contingent liabilities and commitments to extend credit, in the event of non-performance by the other party where all counterclaims, collateral or security prove valueless, is represented by the
contractual amounts of those instruments. The Group uses the same credit control and risk management policies in undertaking off-balance sheet commitments as it
does for on balance sheet lending. The following tables give the nominal or contract amounts of contingent liabilities and commitments:  Contract amount2012 m





2011 mContingent liabilities(1) credit relatedGuarantees and assets pledged as collateral security:Guarantees and irrevocable letters of credit




980





1,414Other contingent liabilities




581





5951,561





2,009Commitments(2)Documentary credits and short-term trade-related transactions




27





29Undrawn note issuance and revolving underwriting facilities










Undrawn formal standby facilities, credit lines and other commitments to lend:Less than 1 year(3)




6,977





7,2401 year and over(4)




1,970





2,5938,974





9,86210,535





11,871 (1)Contingent liabilities are off-balance sheet
products and include guarantees, standby letters of credit and other contingent liability products such as performance bonds. (2)A commitment is an off-balance sheet product, where there is an agreement to provide an undrawn credit facility. The contract may or may not be cancelled unconditionally at any time without notice
depending on the terms of the contract. (3)An original maturity of up to and
including 1 year or which may be cancelled at any time without notice. (4)With
an original maturity of more than 1 year.  Contingent liabilities




Commitments2012
 m


2011
 m




2012
 m


2011  mConcentration of exposureRepublic of Ireland


822



1,023





7,784



8,277United Kingdom


492



504





1,149



1,352United States of America


247



475





41



185Rest of the world






7









48Total


1,561



2,009





8,974



9,862








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53  Memorandum items: contingent liabilities and commitments, and contingent assets(continued) The credit rating of contingent liabilities and commitments as at 31 December 2012 and 2011 are set out in the following table.
Details of the Groups rating profiles and masterscale ranges are set out in the Risk management section.  2012




2011Masterscale grade

 m




 m1 to 3


3,652





5,3344 to 10


2,875





2,80011 to 13


1,925





1,834Unrated


2,083





1,90310,535





11,871 Legal proceedings AIB Group in the course of
its business is frequently involved in litigation cases. However, it is not, nor has been involved in, nor are there, so far as the Company is aware, pending or threatened by or against AIB Group any legal or arbitration proceedings, including
governmental proceedings, which may have, or have had during the previous twelve months, a material effect on the financial position or profitability of AIB Group. Contingent liability/contingent asset - NAMA (a)
Transfers of financial assets to NAMA are complete. However, NAMA continues to finalise certain value to transfer adjustments and the final consideration payable on tranches which have already transferred. Accordingly,
AIB has maintained a provision for the amount of the expected outflow in respect of various adjustments. If the actual amounts provided prove to be lower or higher than the provision, an inflow or outflow of economic benefits may result to AIB (note
43). (b)
The Group has provided NAMA with a series of indemnities relating to transferred assets. Any indemnity payment would result in an outflow of economic benefit for the Group. (c)
On dissolution or restructuring of NAMA, the Minister may require that a report and accounts be prepared. If NAMA shows that an aggregate loss has been incurred since its establishment which is unlikely to be made good,
the Minister may impose a surcharge on the participating institution. This will involve apportioning the loss on the participating institution, subject to certain restrictions, on the basis of the book value of the assets acquired from that
institution in relation to the total book value of assets acquired from all participating institutions. Participation in TARGET 2 - Ireland Allied Irish Banks, p.l.c. (AIB) migrated to the TARGET 2 system during 2008. TARGET 2, being the wholesale payment infrastructure for credit
institutions across Europe, is a real time gross settlement system for large volume interbank payments in euro. The following disclosures relate to the charges arising as a result of the migration to TARGET 2: By Deeds of Charge made on 15 February 2008, AIB created first floating charges in favour of the Central Bank of Ireland over all of AIBs
right, title, interest and benefit, present and future, in and to: (i)
the balances then or at any time standing to the credit of Payment Module accounts held by AIB with a Eurosystem central bank; and (ii)
each of the eligible securities included from time to time in the Eligible Securities Schedule furnished by AIB to the Central Bank of Ireland in each case, a Charged Property, for the purpose of securing all present and future liabilities of AIB in respect of AIBs participation
in TARGET 2, arising from the Deeds of Charge and the Terms and Conditions for participation in TARGET 2  Ireland (adopted from time to time by the Central Bank of Ireland), including, without limitation, liabilities to the Central Bank of
Ireland, the European Central Bank, or any national central bank of a Member State that has adopted the euro. The Deeds of Charge contain a provision whereby during
the subsistence of the security, otherwise than with the prior written consent of the Central Bank of Ireland, AIB shall not: (a)
create or attempt to create or permit to arise or subsist any encumbrance on or over the Charged Property or any part thereof; or (b)
otherwise than in the ordinary course of business, sell, transfer, lend or otherwise dispose of the Charged Property or any part thereof or attempt or agree to do so whether by means of one or a number of transactions
related or not and whether at one time or over a period of time.








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54 Off-balance sheet arrangements Under IFRS, transactions and events are accounted for and presented in accordance with their substance and economic reality and not merely their legal form. As a result,
the substance of transactions with a special purpose entity (SPE) forms the basis for their treatment in the Groups financial statements. An SPE is consolidated in the financial statements when the substance of the relationship
between the Group and the SPE indicates that the SPE is controlled by the entity and meets the criteria set out in IAS 27 Consolidated and Separate Financial Statementsand SIC 12 Consolidation - Special Purposes Entities. The primary
form of SPE utilised by the Group are securitisations and employee compensation trusts. Securitisations The Group utilises securitisations primarily to support the following business objectives: 

as an investor, the Group has used securitisation as part of the management of its interest rate and liquidity risks through Treasury; 

as an investor, securitisations have been utilised by the Group to invest in transactions that offered an appropriate risk-adjusted return opportunity; 

as an originator of securitisations, to meet customer demand to offer a full range of investment opportunities by making available opportunities to invest in AIB-managed Collateralised Debt Obligations
(CDOs) and Collateralised Bond Obligations (CBOs); and 

as an originator of securitisations to support the funding activities of the Group. AIB has primarily been an investor
in securitisations issued by other credit institutions. The most significant investment in securitisations has been through Treasurys purchases of senior tranches of predominantly AAA-rated prime Residential Mortgage Backed Securities
(RMBS), holdings of which have continued to reduce during 2012. This portfolio was originally purchased as part of Treasurys primary interest rate and liquidity management objective, subject to qualifying criteria, including
loan-to-value (LTV), seasoning, location and quality of originator. A smaller proportion of the overall portfolio is held in other asset classes which are reported in the available for sale portfolio. At 31 December 2012, the Group also has a small residual portfolio of investments in securitisations which are classified as non-core. The portfolio consists of
both cash and synthetic structures across a variety of asset classes, including RMBS, Commercial Mortgage Backed Securities (CMBS) and CDOs. Arising
from the acquisition of EBS on 1 July 2011, AIB controls certain special purpose vehicles which had been set-up by EBS (note m Investments in Group undertakings to the parent company financial statements). Stock borrowing and lending Securities borrowed are not recognised in the
financial statements, unless these are sold to third parties, at which point the obligation to repurchase the securities is recorded as a trading liability at fair value and any subsequent gain or loss included in trading income. Employee compensation trusts AIB and some of its subsidiary companies use
trust structures to benefit employees and to facilitate the ownership of the Groups equity by employees. The Group consolidates these trust structures where the risks and rewards of the underlying shares have not been transferred to the
employees. Details of these schemes are provided in note 11 of the notes to the consolidated financial statements .








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55 Transfer of financial assets The Group enters into transactions in the normal course of business in which it transfers previously recognised financial assets. Transferred financial assets may, in
accordance with IAS 39 Financial Instruments: Recognition and Measurement: (i)
continue to be recognised in their entirety; or (ii)
be derecognised in their entirety but the Group retains some continuing involvement. The most common transactions where
the transferred assets are not derecognised in their entirety are sale and repurchase agreements, issuance of covered bonds and securitisations. (i)  Transferred financial assets not derecognised in their entirety Sale and repurchase agreements Sale and repurchase agreements are
transactions in which the Group sells a financial asset to another party, with an obligation to repurchase it at a fixed price on a certain later date. The Group continues to recognise the financial assets in full in the statement of financial
position as it retains substantially all the risks and rewards of ownership. The Groups sale and repurchase agreements are predominantly with central banks and banks. The obligation to pay the repurchase price is recognised within
Deposits by central banks and banks (note 39) and Customer accounts (note 40). As the Group sells the contractual rights to the cash flows of the financial assets, it does not have the ability to use or pledge the transferred
assets during the term of the sale and repurchase agreement. The Group remains exposed to credit risk and interest rate risk on the financial assets sold. The obligation arising as a result of sale and repurchase agreements together with the
carrying value of the financial assets pledged are set out in the table below. Securities sold under agreements to repurchase (notes 39 and 40), all of which mature
within six months, (with the exception of  11.25 billion (2011:  3 billion) funded through the ECB three year
Long Term Refinancing Operation (LTRO)) are secured by Irish Government bonds, NAMA senior bonds, other marketable securities and eligible assets. The Group has securitised certain of its mortgage and loan portfolios as outlined below in
relation to AIB Mortgage Bank and EBS Mortgage Finance. These securities, other than issued to external investors, have been pledged as collateral in addition to other securities held by the Group. The Group has granted a floating charge over certain residential mortgage pools, the drawings against which were Nil at 31 December 2012 (2011: Nil). Issuance of covered bonds Covered bonds, which the Group issues, are
debt securities backed by cash flows from mortgages for the purpose of financing loans secured on residential property through its wholly owned subsidiaries, AIB Mortgage Bank and EBS Mortgage Finance. The Group retains all of the risks and rewards
of these mortgage loans and therefore, the loans continue to be recognised on the Groups statement of financial position with the related covered bonds included within Debt securities in issue (note 41). The Group remains exposed
to credit risk and interest rate risk on the financial assets sold. As the Group sells the contractual rights to the cash flows of the financial assets it does not have the ability to use the transferred assets during the term of the arrangement.
However, of the total debt securities issued amounting to  13.4 billion, internal Group companies hold  10.1
billion which are eliminated on consolidation. These internally issued bonds are used by AIB Group as part of sale and repurchase agreements with the Central Bank of Ireland as outlined above. Securitisations Securitisations are transactions in which the Group
sells financial assets to special purpose entities (SPEs), which, in turn, issue notes to external investors. The notes issued by the SPEs are on terms which result in the Group retaining the majority of ownership risks and rewards and
therefore, the financial assets continue to be recognised on the Groups statement of financial position. The Group remains exposed to credit risk, interest rate risk and foreign exchange risk on the financial assets sold. The liability in
respect of the cash received from the external investors is included within Debt securities in issue (note 41). Under the terms of the securitisations, the rights of the investors are limited to the financial assets in the securitised
portfolios and any related income generated by the portfolios, without recourse to the Group. The Group does not have the ability to use the financial assets transferred as part of securitisation transactions during the term of the arrangement. In 2012, the Group securitised  533 million of its residential
mortgage portfolio held in the AIB UK market segment. These mortgages were transferred to a securitisation vehicle, Tenterden Funding p.l.c. (Tenterden). In order to fund the acquired mortgages, Tenterden issued class A notes to external
investors and class B notes to an AIB subsidiary. The transferred mortgages have not been derecognised as the Group retains substantially all the risks and rewards of ownership and continue to be reported in the Groups financial statements.
Tenterden is consolidated into the Groups financial statements with the class B notes being eliminated on consolidation. The liability in respect of cash received by Tenterden from the external investors is included within Debt
securities in issue (note 41) on the statement of financial position. At 31 December 2012, the carrying amount of the assets which the Group continues to recognise is  467 million and the
carrying amount of the associated liabilities is  316 million.








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55 Transfer of financial assets(continued) Arising from the acquisition of EBS on 1 July 2011, the Group controls three special purpose entities which had previously been set up by EBS: Emerald Mortgages No.4
p.l.c.; Emerald Mortgages No. 5; and Mespil 1 RMBS Limited. Emerald Mortgages No.4 plc The total carrying value of the original residential mortgages transferred by EBS Limited to Emerald Mortgages No.4 plc (Emerald 4) as part of the
securitisation amounts to  1,500 million. The amount of transferred secured loans that the Group has recognised at 31 December 2012 is  868 million. The carrying amount of the bonds issued by Emerald 4 to third party investors amounts to  846 million and is included within Debt securities
in issue (note 41). Neither Emerald Mortgages No. 5 nor Mespil 1 RMBS Limited have external investors. The following table sets out the carrying value of financial assets which did not qualify for derecognition and their associated financial liabilities:  2012Carryingamount of transferredassets



Carryingamount ofassociatedliabilities
(2)


Fairvalue
oftransferredassets



Fairvalue
ofassociatedliabilities



Netposition m



 m



 mSale and repurchase agreements


32,120
(1)


27,950



32,166



27,950



4,216Issuance of covered bonds(3)


5,584



3,315



4,635



3,434



1,201Securitisations(3)


1,178



1,162



1,071



709



362 (1)Includes NAMA senior bonds. (2)Relates to third party investors only. (3)The carrying value and fair value of transferred assets have been apportioned
between external investors and internal investors with that portion relating to external investors recorded in this table. (ii) Transferred financial assets
derecognised in their entirety but the Group retains some continuing involvement AIB has a continuing involvement in transferred financial assets where it
retains any of the risks and rewards of ownership of the transferred financial assets. Set out below are transactions in which AIB has a continuing involvement in assets transferred. Pension scheme On 31 July 2012, AIB entered into a Contribution
Deed with the Trustee of the AIB Group Irish Pension Scheme (the Irish Scheme), whereby it agreed to make contributions to the scheme to enable the Trustee ensure that the regulatory Minimum Funding Standard position of non-pensioner
members of the pension scheme was not affected by the agreed early retirement scheme. These contributions amounting to  594 million were settled
through the transfer to the Irish scheme of interests in an SPV owning loans and receivables previously transferred at fair value from the Group. The loans and receivables which had a carrying value of 
1,024 million transferred at fair value to the SPV resulting in a loss on disposal of  430 million. The loans and receivables were derecognised in the Groups financial statements (note 12). A subsidiary company of the Group was appointed as a service provider for the loans and receivables transferred. Under the servicing agreement, the Group subsidiary
company collects the cash flows on the transferred loans and receivables on behalf of the pension scheme in return for a fee. The fee is based on an annual rate of 0.125% of the principal balance outstanding of all transferred loans and receivables
on the last day of each calendar month. The Group has not recognised a servicing asset/liability in relation to this servicing arrangement, as the fee is considered to be a market rate. Under the servicing agreement, the Irish scheme has the right
to replace the Group subsidiary company as the service provider with an external third party. In 2012, the Group recognised  0.5 million (cumulative  0.5 million) in the income statement for the servicing of the loans and receivables transferred.








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55 Transfer of financial assets(continued) NAMA During 2010 and 2011, AIB transferred financial assets with a net
carrying value of  15,428 million to NAMA. All assets transferred were derecognised in entirety. As part of this transaction, the Group has provided NAMA with a series of indemnities relating to the transferred assets. Also, on the dissolution or restructuring of
NAMA, the Irish Minister for Finance (the Minister) may require a report and accounts to be prepared. If NAMA reports an aggregate loss since its establishment and this is unlikely to be made good, the Minister may impose a surcharge on
the participating institution. This will involve apportioning the loss on the participating institution, subject to certain restrictions, on the basis of the book value of the assets transferred by the institution in relation to the total book value
of assets transferred by all participating institutions. At this stage it is not possible to quantify the maximum exposure to loss which may arise on the dissolution or restructuring of NAMA. In addition, the Group has been appointed by NAMA as a service provider for the loans and receivables transferred, for which it receives a fee. The fee is based on the
lower of actual costs incurred or 0.1% of the value of the financial assets transferred. The Group has not recognised a servicing asset/liability in relation to this servicing arrangement. In 2012, the Group recognised  16 million (cumulative  37 million) in the income statement for the servicing of financial assets transferred
to NAMA.








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56 Fair value of financial instruments The term financial instruments includes both financial assets and financial liabilities. The fair value of a financial instrument is the amount for which an
asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arms length transaction. The Groups accounting policy for the determination of fair value of financial instruments is set out in accounting
policy number 16. Readers of these financial statements are advised to use caution when using the data in the following table to evaluate the Groups financial
position or to make comparisons with other institutions. Fair value information is not provided for items that do not meet the definition of a financial instrument. These items include intangible assets such as the value of the branch network and
the long-term relationships with depositors, premises and equipment and shareholders equity. These items are material and accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent,
the underlying value of the Group as a going concern at 31 December 2012. The valuation of financial instruments, including loans and receivables, involves the
application of judgement and estimation. Market and credit risks are key assumptions in the estimation of the fair value of loans and receivables. During the year, AIB has continued to observe adverse changes in the credit quality of its borrowers,
with increasing delinquencies and defaults across a range of sectors. The volatility in financial markets and the illiquidity that is evident in these markets has reduced the demand for many financial instruments and this creates a difficulty in
estimating the fair value for loans to customers. AIB has estimated the fair value of its loans to customers taking into account market risk and the changes in credit quality of its borrowers.  31 December 2012


31 December 2011Carryingamount


Fair  value


Carryingamount


Fair valueNotes


 m


 m


 m


 mFinancial assetsCash and balances at central banks


a



4,047



4,047



2,934



2,934Items in course of collection


a



192



192



202



202Disposal groups and non-current assets held for sale net of liabilities


c



549



435



1,212



1,012Trading portfolio financial assets


b



24



24



56



56Derivative financial instruments


b



2,835



2,835



3,046



3,046Loans and receivables to banks


d



2,914



2,914



5,718



5,719Loans and receivables to customers


e



72,972



64,138



82,540



68,846NAMA senior bonds


f



17,387



17,446



19,856



20,061Financial investments available for sale


b



16,344



16,344



15,389



15,389Fair value hedged asset positions


g











17



Financial liabilitiesDeposits by central banks and banks


h



28,442



28,442



36,890



36,890Customer accounts


h



63,610



64,435



60,674



61,101Derivative financial instruments


b



3,256



3,256



3,843



3,843Debt securities in issue


i



10,666



11,019



15,654



13,025Subordinated liabilities and other capital instruments


i



1,271



1,650



1,209



1,120Fair value hedged liability positions


g



565







507



 Financial instruments recorded at fair value in the financial statements (a)
The fair value of these financial instruments is considered equal to the carrying value. These instruments are either carried at market value or have minimal credit losses.  (b)
Financial instruments reported at fair value include trading portfolio financial assets and financial liabilities, derivative financial instruments and financial investments available for sale. The fair value of trading
and available for sale debt securities, together with quoted equity shares are based on quoted prices or bid/offer quotations sourced from external securities dealers, where these are available on an active market. Where securities and derivatives
are traded on an exchange, the fair value is based on prices from the exchange. The fair value of unquoted equity shares, debt securities not quoted in an active market, and over-the-counter derivative financial instruments is calculated using
valuation techniques, as described in accounting policy number 16.








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56 Fair value of financial instruments(continued) Financial instruments with fair value information presented separately in the notes to the financial statements (c)
The fair value of loans and receivables held for sale has been estimated based on expected sale proceeds. Available for sale equity securities and equity securities designated as at fair value through profit or loss
have been included at their carrying value. The fair value of certain other assets within disposal groups and non-current assets held for sale has not been included, as these are not financial assets.  (d)
The fair value of loans and receivables to banks is estimated using discounted cash flows applying either market rates, where practicable, or rates currently offered by other financial institutions for placings with
similar characteristics.  (e)
The Group provides lending facilities of varying rates and maturities to corporate and personal customers. Valuation techniques are used in estimating the fair value of loans, primarily using discounted cash flows,
applying market rates where practicable and the expected cash flows from deleveraging activity. In addition to the assumptions set out above under valuation techniques regarding cash flows and discount rates, a key assumption for loans and receivables is that the carrying amount of variable rate loans (excluding
mortgage products) approximates to market value where there is no significant credit risk of the borrower. The fair value of variable mortgage products including tracker mortgages is calculated by discounting expected cash flows using discount rates
that reflect the interest rate risk in the portfolio. For fixed rate loans, the fair value is calculated by discounting expected cash flows using discount rates that reflect the interest rate risk in that portfolio. For the overall loan portfolio,
an adjustment is made for credit risk which at 31 December 2012 took account of the Groups expectation of credit losses over the life of the loans.  (f)
The fair value of the NAMA senior bonds has been estimated using a valuation technique since there in no active market for these bonds. The valuation technique required an increased use of management judgement which
included, but was not limited to, evaluating available market information, determining the cashflows generated by the instruments, identifying a risk free discount rate and applying an appropriate credit spread.  (g)
The fair value of the hedged asset and liability positions are included in the fair value of the relevant assets and liabilities being hedged.  (h)
The fair value of current accounts and deposit liabilities which are repayable on demand, or which re-price frequently, approximates to their book value. The fair value of all other deposits and other borrowings is
estimated using discounted cash flows applying either market rates, where applicable, or interest rates currently offered by the Group.  (i)
The estimated fair value of subordinated liabilities and other capital instruments, and debt securities in issue, is based on quoted prices where available, or where these are unavailable, are estimated using valuation
techniques using observable market data for similar instruments. Where there is no market data for a directly comparable instrument, management judgement, on an appropriate credit spread to similar or related instruments with market data available,
is used within the valuation technique. This is supported by cross referencing other similar or related instruments. Commitments pertaining to
credit-related instruments Details of the various credit-related commitments and other off-balance sheet financial guarantees entered into by the Group are
included in note 53. Fees for these instruments may be billed in advance or in arrears on an annual, quarterly or monthly basis. In addition, the fees charged vary on the basis of instrument type and associated credit risk. As a result, it is not
considered practicable to estimate the fair value of these instruments because each customer relationship would have to be separately evaluated.








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56 Fair value of financial instruments(continued) Fair value hierarchy The fair values of financial instruments are measured
according to the following fair value hierarchy: Level 1 financial assets and liabilities measured using quoted market prices (unadjusted). Level 2 financial assets and liabilities measured using valuation techniques which use observable market data. Level 3 financial assets and liabilities measured using valuation techniques which use unobservable market data. The following table sets out the carrying value of financial instruments measured at fair value across the three levels of the fair value hierarchy at 31 December
2012 and at 31 December 2011:  2012Level 1
 m


Level 2 m


Level 3 m


Total
 mFinancial assetsDisposal groups and non-current assets held for sale










196



196Trading portfolio financial assets


23



1







24Derivative financial instruments






2,835







2,835Financial investments available for sale

 debt securities


16,128



61



12



16,201 equity securities


58



1



84



14316,209



2,898



292



19,399Financial liabilitiesDerivative financial instruments






3,236



20



3,256



3,236



20



3,2562011Level 1
 m


Level 2 m


Level 3 m


Total  mFinancial assetsDisposal groups and non-current assets held for sale










22



22Trading portfolio financial assets


50



6







56Derivative financial instruments






3,046







3,046Financial investments available for sale

 debt securities


13,720



1,413



12



15,145 equity securities


54



10



180



24413,824



4,475



214



18,513Financial liabilitiesDerivative financial instruments






3,734



109



3,843



3,734



109



3,843








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56 Fair value of financial instruments(continued) Significant transfers between Level 1 and Level 2 of the fair value hierarchy  2012Financial assetsTradingportfolio


Debtsecurities


Total m


 m


 mTransfer into Level 1 from Level 2


_



908



908Transfer into Level 2 from Level 1










 Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available. Reconciliation of balances in Level 3 of the fair value hierarchy The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements
in Level 3 of the fair value hierarchy:  2012Financial assets


Financial liabilitiesDisposal groups

Derivatives


AFS


Total


Derivatives


Totaland non-current




Debt


Equityassets held for sale




securities


securities m

 m


 m


 m


 m


 m


 mAt 1 January 2012

22






12



180



214



109



109Designated to fair value through profit or loss

196














196







Transfers out of level 3












(18
)


(18)







Total gains or losses in:Profit or loss

(2)










(86
)


(88)



39



39Other comprehensive income

(7)










5



(2)







Net NAMA subordinated bonds












(3
)


(3)







Purchases












8



8







Sales

(13)










(2
)


(15)







Settlements




















(128
)


(128)At 31 December 2012

196






12



84



292



20



20 Transfers out of Level 3 occurred because of increased observability in the market prices of these instruments. Losses included in profit or loss for the year in the above tables are presented in the income statement and are recognised as:  2012
 mNet trading loss


(39)Provisions for impairment of financial investments available for sale


(86)Other operating loss


(2)Total


(127) Losses for the year included in the income statement relating to financial assets and liabilities held at the end of the year:  2012 mNet trading loss


(6)Provisions for impairment of financial investments available for sale


(85)Total


(91)








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56 Fair value of financial instruments(continued) Significant transfers between Level 1 and Level 2 of the fair value hierarchy  2011Financial assetsTradingportfolio


Debtsecurities


Total m


 m


 mTransfer into Level 1 from Level 2






61



61Transfer into Level 2 from Level 1






178



178 Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available. Reconciliation of balances in Level 3 of the fair value hierarchy The following table shows a reconciliation from the beginning balances to the ending balances for fair value measurements in Level 3 of the fair value hierarchy:  2011Financial assets


Financial liabilitiesDisposal groups

Derivatives


AFS


Total


Derivatives


Totaland non-current assets held for sale 
m

 m


Debtsecurities m


Equitysecurities m


 m


 m


 mAt 1 January 2011








12



263



275



122



122Acquisition of subsidiaries












6



6







Reclassified to disposal groups and non-current assets held for sale

22










(22
)










Transfers out of Level 3




















(4
)


(4)Total gains or losses in:Profit or loss












(105
)


(105)



71



71Other comprehensive income












43



43



3



3Net NAMA subordinated bonds additions












12



12







Additions












19



19







Purchases












6



6







Sales












(42
)


(42)







Settlements




















(83
)


(83)At 31 December 2011

22






12



180



214



109



109 Transfers out of Level 3 occurred because of increased observability in the market prices of these instruments. Losses included in profit or loss for the year in the above tables are presented in the income statement and are recognised as:  2011 mNet trading loss


(71)Provisions for impairment of financial investments available for sale


(113)Other operating loss


8Total


(176) Losses for the year included in the income statement relating to financial assets and liabilities held at the end of the year:  2011 mNet trading loss


(50)Provisions for impairment of financial investments available for sale


(113)Total


(163)








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56 Fair value of financial instruments(continued) Sensitivity of Level 3 measurements The implementation of valuation techniques
involves a considerable degree of judgement. While the Group believes its estimates of fair value are appropriate, the use of different measurements or assumptions could lead to different fair values. The following table sets out the impact of using
reasonably possible alternative assumptions, including the impact of changing credit spread assumptions for debt securities:  2012Level 3Effect on income
statement



Effect on other
comprehensive incomeFavourable

Unfavourable



Favourable

Unfavourable m

 m



 m

 mClasses of financial assetsFinancialinvestmentsavailable for sale

 debt securities









 equity securities



(47)



146

Total





(47)



146

Classes of financialliabilitiesDerivative financialinstruments

3

(3)





Total



3

(3)





In relation to the investment in ALH which is designated as an equity
investment at fair value through profit or loss (and categorised as held for sale) this transaction was concluded in March 2013 (note 69).2011Level 3Effect on income
statement



Effect on other
comprehensive incomeFavourable

Unfavourable



Favourable

Unfavourable m

 m



 m

 mClasses of financial assetsFinancialinvestmentsavailable for sale

 debt securities









 equity securities







236

(52)Total









236

(52)Classes of financialliabilitiesDerivative financialinstruments

58

(58)





Total



58

(58)





 Day 1 gain or loss: No difference existed
between the fair value at initial recognition of financial instruments and the amount that was determined at that date using a valuation technique incorporating significant unobservable data.








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57 Classification and measurement of financial assets and financial liabilities Financial assets and financial liabilities are measured on an ongoing basis either at fair value or at amortised cost. The accounting policy for financial assets (number
18), describes how the classes of financial instruments are measured, and how income and expenses, including fair value gains and losses, are recognised. The following table analyses the carrying amounts of the financial assets and liabilities by
category as defined in IAS 39 Financial Instruments: Recognition and Measurementand by statement of financial position heading.  2012At fair value throughprofit and
loss


At fair valuethrough equity


At amortisedcost


TotalAt fair valuethrough profitand loss


Fair value hedge derivatives


Cashflowhedgederivatives


Available for sale securities


Loans
andreceivables


Other m


 m


 m


 m


 m


 m


 mFinancial assetsCash and balances at central banks


















3,481



566(1)



4,047Items in the course of collection


















192







192Disposal groups and non-current assets held for sale


196
(2)














353







549Trading portfolio financial assets


24























24Derivative financial instruments


1,716



788



331















2,835Loans and receivables to banks


















2,914







2,914Loans and receivables to customers


















72,972







72,972NAMA senior bonds


















17,387







17,387Financial investments available for sale














16,344











16,344Other financial assets






















522



5221,936



788



331



16,344



97,299



1,088



117,786Financial liabilitiesDeposits by central banks and banks






















28,442



28,442Customer accounts






















63,610



63,610Derivative financial instruments


1,933



795



528















3,256Debt securities in issue






















10,666



10,666Subordinated liabilities and other capital instruments






















1,271



1,271Other financial liabilities






















537



5371,933



795



528











104,526



107,782 (1)Comprises cash on hand. (2)Designated on initial recognition as at fair value through profit or loss. All
other financial assets/financial liabilities in this column are held for trading.








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|LOGO |  | Notes to the financial statements |  | 






57 Classification and measurement of financial assets and financial liabilities(continued)  2011At fair value throughprofit and
loss


At fair valuethrough equity


At amortisedcost


TotalHeld fortrading


Fair value hedge derivatives


Cashflowhedgederivatives


Available for sale securities


Loans
andreceivables


Other m


 m


 m


 m


 m


 m


 mFinancial assetsCash and balances at central banks


















2,344



590(1)



2,934Items in the course of collection


















202







202Disposal groups and non-current assets held for sale














22



1,191







1,213Trading portfolio financial assets


56























56Derivative financial instruments


1,930



716



400















3,046Loans and receivables to banks


















5,718







5,718Loans and receivables to customers


















82,540







82,540NAMA senior bonds


















19,856







19,856Financial investments available for sale














15,389











15,389Other financial assets






















734



7341,986



716



400



15,411



111,851



1,324



131,688Financial liabilitiesDeposits by central banks and banks






















36,890



36,890Customer accounts






















60,674



60,674Derivative financial instruments


2,430



731



682















3,843Debt securities in issue






















15,654



15,654Subordinated liabilities and other capital instruments






















1,209



1,209Other financial liabilities






















489



4892,430



731



682











114,916



118,759 (1)Comprises cash on hand. 58 Interest rate sensitivity The net interest rate sensitivity of the Group
at 31 December 2012, 2011, 2010, 2009 and 2008 is illustrated in the following tables. The tables set out details of those assets and liabilities whose values are subject to change as interest rates change within each contractual repricing time
period. Details regarding assets and liabilities which are not sensitive to interest rate movements are included within non-interest bearing or trading captions. The tables show the sensitivity of the statement of financial position at one point in
time and are not necessarily indicative of positions at other dates. In developing the classifications used in the tables it has been necessary to make certain assumptions and approximations in assigning assets and liabilities to different repricing
categories. The fair value of derivative financial instruments is included within other assets and other liabilities as interest rate insensitive. However, some
derivative instruments are derived from interest sensitive financial instruments, and are shown separately below each years table. For 2010, assets and
liabilities of Disposal groups and non-current assets held for sale have been shown as interest rate insensitive since the sale of a substantial element of these, (BZWBK), had been agreed. Non-interest bearing amounts relating to financial assets held for sale to NAMA, loans and receivables to banks and loans and receivables to customers include provisions
for impairment. Prior periods have been amended to reflect this.








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58 Interest rate sensitivity(continued)  20120<1Month


1<3Months


3<12Months


1<2Years


2<3Years


3<4Years


4<5Years


5 years +


Non-interestbearing


Trading


Total m


 m


 m


 m


 m


 m


 m


 m


 m


 m


 mAssetsDisposal groups and non-current assets held for sale


323



100



52























87







562Trading portfolio financial assets






































24



24Loans and receivables to banks


2,367



15



























532







2,914Loans and receivables to customers


75,011



7,485



2,591



1,332



967



574



260



1,158



(16,406
)






72,972NAMA senior bonds






17,387



































17,387Financial investments available for sale


943



1,123



785



1,478



2,913



2,148



1,550



5,257



147







16,344Other assets


3,285































7,312



1,716



12,313Total assets


81,929



26,110



3,428



2,810



3,880



2,722



1,810



6,415



(8,328
)


1,740



122,516LiabilitiesDeposits by central banks and banks


25,906



2,528



























8







28,442Customer accounts


27,035



5,759



13,174



1,733



709



955



521



38



13,686







63,610Debt securities in issue






2,461



1,031



849



3,658







1,675



992











10,666Subordinated liabilities and other capital instruments


7



















1,237







27











1,271Other liabilities


































5,353



1,933



7,286Shareholders equity


































11,241







11,241Total liabilities and shareholders equity


52,948



10,748



14,205



2,582



4,367



2,192



2,196



1,057



30,288



1,933



122,516Derivatives affecting interest rate sensitivity


1,318



13,152



(14,277
)


(927
)


(243
)


(147
)


(2,053
)


3,177











Interest sensitivity gap


27,663



2,210



3,500



1,155



(244
)


677



1,667



2,181



(38,616
)


(193
)Cumulative interest sensitivity gap


27,663



29,873



33,373



34,528



34,284



34,961



36,628



38,809



193



(Euro currency amounts)

 m


 m


 m


 m


 m


 m


 m


 m


 m


 mInterest sensitivity gap


17,843



2,027



3,660



1,250



(310
)


144



1,575



1,919



(29,323
)


249Cumulative interest sensitivity gap


17,843



19,870



23,530



24,780



24,470



24,614



26,189



28,108



(1,215
)


(966
)(US$ in euro equivalents)

US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$mInterest sensitivity gap


1,143



(572
)


(23
)


3







(5
)


9



14



(809
)


(7
)Cumulative interest sensitivity gap


1,143



571



548



551



551



546



555



569



(240
)


(247
)(Stg£ in euro equivalents)

Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ mInterest sensitivity gap


8,470



654



(201
)


(114
)


46



538



76



248



(8,533
)


(425
)Cumulative interest sensitivity gap


8,470



9,124



8,923



8,809



8,855



9,393



9,469



9,717



1,184



759(Other currencies in euroequivalents)

Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other mInterest sensitivity gap


207



101



64



16



20







7







49



(10
)Cumulative interest sensitivity gap


207



308



372



388



408



408



415



415



464



454








307



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58 Interest rate sensitivity(continued)  20110<1Month


1<3Months


3<12Months


1<2Years


2<3Years


3<4Years


4<5Years


5 years +


Non-interestbearing


Trading


Total m


 m


 m


 m


 m


 m


 m


 m


 m


 m


 mAssetsDisposal groups and non-current assets held for sale


428



585



41



64







22











282







1,422Trading portfolio financial assets






































56



56Loans and receivables to banks


5,284



50



12























372







5,718Loans and receivables to customers


79,457



6,691



3,199



2,957



1,457



846



629



2,236



(14,932
)






82,540NAMA senior bonds






19,856



































19,856Financial investments available for sale


1,761



2,259



593



1,093



2,430



1,257



1,410



4,342



244







15,389Other assets


2,344































7,396



1,930



11,670Total assets


89,274



29,441



3,845



4,114



3,887



2,125



2,039



6,578



(6,638
)


1,986



136,651LiabilitiesDisposal groups held for sale


































3







3Deposits by central banks and banks


34,243



2,647



































36,890Customer accounts


27,232



5,974



8,406



4,392



1,421



553



743



41



11,912







60,674Debt securities in issue


2,451



2,695



2,081



2,870



750



3,017







1,790











15,654Subordinated liabilities and other capital instruments


























1,177



32











1,209Other liabilities


































5,328



2,430



7,758Shareholders equity


































14,463







14,463Total liabilities and shareholders equity


63,926



11,316



10,487



7,262



2,171



3,570



1,920



1,863



31,706



2,430



136,651Derivatives affecting interest rate sensitivity


(9,358
)


21,089



(9,724
)


(2,944
)


1,126



(1,886
)


(17
)


1,714











Interest sensitivity gap


34,706



(2,964
)


3,082



(204
)


590



441



136



3,001



(38,344
)


(444
)Cumulative interest sensitivity gap


34,706



31,742



34,824



34,620



35,210



35,651



35,787



38,788



444



(Euro currency amounts)

 m


 m


 m


 m


 m


 m


 m


 m


 m


 mInterest sensitivity gap


29,008



(2,957
)


3,053



(369
)


487



137



43



1,278



(26,565
)


947Cumulative interest sensitivity gap


29,008



26,051



29,104



28,735



29,222



29,359



29,402



30,680



4,115



5,062(US$ in euro equivalents)

US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$mInterest sensitivity gap


(272
)


(128
)


55



87



13



1



14



28



(2,570
)


(56
)Cumulative interest sensitivity gap


(272
)


(400
)


(345
)


(258
)


(245
)


(244
)


(230
)


(202
)


(2,772
)


(2,828
)(Stg£ in euro equivalents)

Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ mInterest sensitivity gap


5,794



32



(111
)


49



68



279



76



1,689



(8,796
)


(1,400
)Cumulative interest sensitivity gap


5,794



5,826



5,715



5,764



5,832



6,111



6,187



7,876



(920
)


(2,320
)(Other currencies in euroequivalents)

Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other m


Other mInterest sensitivity gap


176



89



85



29



22



24



3



6



(413
)


65Cumulative interest sensitivity gap


176



265



350



379



401



425



428



434



21



86








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58 Interest rate sensitivity(continued)  20100<1


1<3


3<12


1<2


2<3


3<4


4<5


5 years +


Non-interest


Trading


TotalMonth


Months


Months


Years


Years


Years


Years





bearing m


 m


 m


 m


 m


 m


 m


 m


 m


 m


 mAssetsFinancial assets held for sale to NAMA


1,233



950



36



1



20



7







1



(326
)


15



1,937Disposal groups and non-current assets held for sale


































13,911







13,911Trading portfolio financial assets






































33



33Loans and receivables to banks


2,558



2



1























382







2,943Loans and receivables to customers


66,825



10,620



3,811



2,230



1,822



952



850



6,488



(7,248
)






86,350






























7,869Financial investments available for sale


3,585



4,260



2,041



1,944



1,013



2,369



813



4,486



314







20,825Other assets


3,086































6,391



1,877



11,354Total assets


77,287



23,701



5,889



4,175



2,855



3,328



1,663



10,975



13,424



1,925



145,222LiabilitiesDisposal groups held for sale


































11,548







11,548Deposits by central banks and banks


40,578



9,143



148































49,869Customer accounts


31,851



5,783



6,273



789



396



374



343



316



6,264







52,389Debt securities in issue


1,973



4,249



835



1,272



2,820



750



2,000



1,765











15,664Subordinated liabilities & capital instruments


376



242



















68



3,645











4,331Other liabilities


































5,523



2,239



7,762Shareholders equity


































3,659







3,659Total liabilities and shareholders equity


74,778



19,417



7,256



2,061



3,216



1,124



2,411



5,726



26,994



2,239



145,222Derivatives affecting interest rate sensitivity


5,934



9,758



(10,553
)


(661
)


(2,563
)


1,156



(919
)


(2,152
)










Interest sensitivity gap


(3,425
)


(5,474
)


9,186



2,775



2,202



1,048



171



7,401



(13,570
)


(314
)Cumulative interest sensitivity gap


(3,425
)


(8,899
)


287



3,062



5,264



6,312



6,483



13,884



314



(Euro currency amounts)

 m


 m


 m


 m


 m


 m


 m


 m


 m


 mInterest sensitivity gap


(10,413
)


(5,143
)


7,716



2,326



1,863



913



147



5,693



(5,041
)


(227
)Cumulative interest sensitivity gap


(10,413
)


(15,556
)


(7,840
)


(5,514
)


(3,651
)


(2,738
)


(2,591
)


3,102



(1,939
)


(2,166
)(US$ in euro equivalents)

US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ mInterest sensitivity gap


972



(479
)


255



(244
)


78



24



6



64



(875
)


(89
)Cumulative interest sensitivity gap


972



493



748



504



582



606



612



676



(199
)


(288
)(Stg£ in euro equivalents)

Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ mInterest sensitivity gap


5,845



(71
)


1,011



665



229



92



2



1,617



(8,649
)


26Cumulative interest sensitivity gap


5,845



5,774



6,785



7,450



7,679



7,771



7,773



9,390



741



767(Other currencies in euro equivalents)

PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN mInterest sensitivity gap


16































586



(158
)Cumulative interest sensitivity gap


16



16



16



16



16



16



16



16



602



444








309



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58 Interest rate sensitivity(continued)20090<1


1<3


3<12


1<2


2<3


3<4


4<5


5 years +


Non-interest


Trading


TotalMonth


Months


Months


Years


Years


Years


Years





bearing m


 m


 m


 m


 m


 m


 m


 m


 m


 m


 mAssetsFinancial assets held for sale to NAMA


12,969



9,669



133



129



41



47



44



163



(4,108
)


125



19,212Trading portfolio financial assets






































296



296Loans and receivables to banks


8,218



508



2























365







9,093Loans and receivables to customers


73,705



16,520



4,430



2,594



2,114



1,435



903



4,627



(2,987
)






103,341Financial investments available for sale


5,423



6,485



1,980



3,153



1,932



534



1,104



4,398



327







25,336Financial investments held to maturity






77



1,509































1,586Other assets


3,569































7,247



4,634



15,450Total assets


103,884



33,259



8,054



5,876



4,087



2,016



2,051



9,188



844



5,055



174,314LiabilitiesFinancial liabilities held for sale to NAMA






































3



3Deposits by central banks and banks


13,522



11,813



7,990



8



























33,333Customer accounts


52,322



12,865



9,263



548



429



339



341



163



7,683







83,953Trading portfolio financial liabilities






































23



23Debt securities in issue


9,047



9,891



7,191



39



1,000



1,000



746



1,740











30,654Subordinated liabilities & capital instruments


846



454























3,286











4,586Other liabilities


































6,193



4,860



11,053Shareholders equity


































10,709







10,709Total liabilities and shareholders equity


75,737



35,023



24,444



595



1,429



1,339



1,087



5,189



24,585



4,886



174,314Derivatives affecting interest rate sensitivity


11,917



9,771



(16,873
)


309



(744
)


(1,660
)


(34
)


(2,686
)










Interest sensitivity gap


16,230



(11,535
)


483



4,972



3,402



2,337



998



6,685



(23,741
)


169Cumulative interest sensitivity gap


16,230



4,695



5,178



10,150



13,552



15,889



16,887



23,572



(169
)


(Euro currency amounts)

 m


 m


 m


 m


 m


 m


 m


 m


 m


 mInterest sensitivity gap


16,672



(12,369
)


(1,066
)


4,110



2,779



1,962



872



5,729



(17,356
)


(1,251
)Cumulative interest sensitivity gap


16,672



4,303



3,237



7,347



10,126



12,088



12,960



18,689



1,333



82(US$ in euro equivalents)

US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$m


US$mInterest sensitivity gap


(5,051
)


(2,258
)


(10
)


235



33



75



43



80



(734
)


(88
)Cumulative interest sensitivity gap


(5,051
)


(7,309
)


(7,319
)


(7,084
)


(7,051
)


(6,976
)


(6,933
)


(6,853
)


(7,587
)


(7,675
)(Stg£ in euro equivalents)

Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ mInterest sensitivity gap


6,283



3,746



445



325



289



144



(3
)


819



(5,398
)


55Cumulative interest sensitivity gap


6,283



10,029



10,474



10,799



11,088



11,232



11,229



12,048



6,650



6,705(Other currencies in euro equivalents)

PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN mInterest sensitivity gap


(2,039
)


(906
)


1,426



241



250



102



70



23



(363
)


991Cumulative interest sensitivity gap


(2,039
)


(2,945
)


(1,519
)


(1,278
)


(1,028
)


(926
)


(856
)


(833
)


(1,196
)


(205
)








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58 Interest rate sensitivity(continued)20080<1


1<3


3<12


1<2


2<3


3<4


4<5


5 years +


Non-interest


Trading


TotalMonth


Months


Months


Years


Years


Years


Years





bearing m


 m


 m


 m


 m


 m


 m


 m


 m


 m


 mAssetsTrading portfolio financial assets






































401



401Loans and receivables to banks


5,691



263























126



186







6,266Loans and receivables to customers


90,038



22,164



7,037



3,096



2,175



1,871



1,562



3,838



(2,292
)






129,489Financial investments available for sale


6,857



7,589



2,043



1,549



3,349



1,123



977



5,250



287







29,024Financial investments held to maturity






76



1,423































1,499Other assets


1,565



























-



8,492



5,438



15,495Total assets


104,151



30,092



10,503



4,645



5,524



2,994



2,539



9,214



6,673



5,839



182,174LiabilitiesDeposits by central banks and banks


16,013



7,491



1,843



74



9















148







25,578Customer accounts


57,723



14,347



10,610



731



486



384



331



354



7,638







92,604Trading portfolio financial liabilities






































111



111Debt securities in issue


12,401



13,916



4,674



4,098



41



4



1,000



1,680











37,814Subordinated liabilities and capital instruments


858



400



200



















3,068











4,526Other liabilities


































7,129



5,443



12,572Shareholders equity


































8,969







8,969Total liabilities and shareholders equity


86,995



36,154



17,327



4,903



536



388



1,331



5,102



23,884



5,554



182,174Derivative financial instruments affecting interest rate sensitivity


4,706



9,096



(8,151
)


(2,303
)


(462
)


(42
)


37



(2,881
)










Interest sensitivity gap


12,450



(15,158
)


1,327



2,045



5,450



2,648



1,171



6,993



(17,211
)


285Cumulative interest sensitivity gap


12,450



(2,708
)


(1,381
)


664



6,114



8,762



9,933



16,926



(285
)


(Euro currency amounts)

 m


 m


 m


 m


 m


 m


 m


 m


 m


 mInterest sensitivity gap


20,835



(7,202
)


1,258



1,108



3,362



1,781



379



5,814



(14,526
)


(426
)Cumulative interest sensitivity gap


20,835



13,633



14,891



15,999



19,361



21,142



21,521



27,335



12,809



12,383(US$ in euro equivalents)

US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ m


US$ mInterest sensitivity gap


(8,454
)


(4,710
)


(2,033
)


411



421



195



232



478



667



(3
)Cumulative interest sensitivity gap


(8,454
)


(13,164
)


(15,197
)


(14,786
)


(14,365
)


(14,170
)


(13,938
)


(13,460
)


(12,793
)


(12,796
)(Stg£ in euro equivalents)

Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ m


Stg£ mInterest sensitivity gap


3,167



(2,935
)


(267
)


339



1,388



556



444



1,086



(4,153
)


430Cumulative interest sensitivity gap


3,167



232



(35
)


304



1,692



2,248



2,692



3,778



(375
)


55(Other currencies in euro equivalents)

PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN m


PLN mInterest sensitivity gap


(3,545
)


(741
)


2,155



130



109



69



60



(457
)


562



229Cumulative interest sensitivity gap


(3,545
)


(4,286
)


(2,131
)


(2,001
)


(1,892
)


(1,823
)


(1,763
)


(2,220
)


(1,658
)


(1,429
)








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59 Statement of cash flows Analysis of cash and cash equivalents For the purpose of the statement of cash
flows, cash equivalents comprise the following balances with less than three months maturity from the date of acquisition:  2012


2011


2010 m


 m


 mCash and balances at central banks


4,047



2,934



3,686Loans and receivables to banks


1,879



4,439



1,875Short term investments










1515,926



7,373



5,712 The Group is required to maintain balances with the Central Bank of Ireland which amounted to  107 million at 31 December 2012 (2011:  142 million; 2010:  118 million). The Group is required by law to maintain reserve balances with the Bank of England and during 2011 and 2010 also with central banks in Latvia, Lithuania and Estonia. At
31 December 2012, these amounted to  586 million (2011:  1,676 million; 2010:  1,630 million). There are certain regulatory restrictions on the ability of subsidiaries to transfer funds to the parent
company in the form of cash dividends, loans or advances. The impact of such restrictions is not expected to have a material effect on the Groups ability to meet its cash obligations. Cash flows in respect of acquisitions The aggregate net outflow of cash
arising from the acquisition of Anglo deposit business (note 22) and EBS (note 23) in 2011 is as follows:  2011 mCash consideration paid on acquisition of Anglo business


(3,779)Cash and cash equivalent acquired on acquisition of EBS


359Net cash outflow on acquisitions


(3,420)








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60 Financial assets and financial liabilities by contractual residual maturity 2012Repayableon demand


3 months or less
but not repayable on
demand


1 year or less
but over 3 months


5 years or less
but over 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mFinancial assetsFinancial assets of disposal groups(1)(2)(4)


237







17



26



195



475Trading portfolio financial assets(2)






2







15



5



22Derivative financial instruments(3)






248



263



1,364



960



2,835Loans and receivables to banks(4)


2,083



748



87











2,918Loans and receivables to customers(4)


32,619



1,675



4,761



8,319



42,023



89,397NAMA senior bonds(5)






17,387















17,387Financial investments available for sale(2)


4



283



956



8,610



6,348



16,201Other financial assets


5



517















52234,948



20,860



6,084



18,334



49,531



129,757Financial liabilitiesDeposits by central banks and banks


337



16,605







11,500







28,442Customer accounts


25,896



19,009



12,522



5,194



989



63,610Derivative financial instruments(3)






223



205



962



1,866



3,256Debt securities in issue






2,350



984



6,413



919



10,666Subordinated liabilities and other capital instruments














1,237



34



1,271Other financial liabilities


534



3















53726,767



38,190



13,711



25,306



3,808



107,7822011Repayable on
demand


3 months or less
but not repayable on demand


1 year or less
but over 3 months


5 years or less
but over 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mFinancial assetsFinancial assets of disposal groups(1)(2)


5



26



263



671



226



1,191Trading portfolio financial assets(2)






8







35



11



54Derivative financial instruments(3)






238



190



1,163



1,455



3,046Loans and receivables to banks(4)


3,353



2,246



123











5,722Loans and receivables to customers(4)


22,930



2,601



6,696



12,467



52,798



97,492NAMA senior bonds(5)






19,856















19,856Financial investments available for sale(2)






942



1,334



6,645



6,224



15,145Other financial assets


2



732















73426,290



26,649



8,606



20,981



60,714



143,240Financial liabilitiesDeposits by central banks and banks


711



33,079







3,100







36,890Customer accounts


26,177



18,683



10,947



4,810



57



60,674Derivative financial instruments(3)






575



305



941



2,022



3,843Debt securities in issue






2,139



3,654



7,196



2,665



15,654Subordinated liabilities and other capital instruments














1,177



32



1,209Other financial liabilities


474



15















48927,362



54,491



14,906



17,224



4,776



118,759 (1)Only disposal groups that contain financial
assets and financial liabilities have been included. (2)Excluding equity
shares. (3)Shown by maturity date of contract. (4)Shown gross of provisions for impairment, unearned income and deferred costs. (5)New notes will be issued at each maturity date, with the next maturity date
being 1 March 2013. Upon maturity, the issuer has the option to settle in cash or issue new notes and to date has issued new notes.








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61 Financial liabilities by undiscounted contractual maturity The balances in the table below include the undiscounted cash flows relating to principal and interest on financial liabilities and as such will not agree directly with
the balances on the consolidated statement of financial position. All derivative financial instruments with the exception of interest rate swaps have been included in the 3 months or less but not repayable on demand category at their
mark to market value. Interest rate swaps have been analysed based on their contractual maturity undiscounted cash flows. In the daily management of liquidity risk,
the Group adjusts the contractual outflows on customer deposits to reflect inherent stability of these deposits. Offsetting the liability outflows are cash inflows from the assets on the statement of financial position. Additionally, the Group holds
a stock of high quality liquid assets, which are held for the purpose of covering unexpected cash outflows. The following table analyses, on an undiscounted basis,
financial liabilities by remaining contractual maturity:  2012Repayable
on demand


3 months
or less but not repayable
on demand


1 year or less
but over 3 months


5 years
or less but
over 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mFinancial liabilities(1)Derivative financial instruments






572



480



1,584



1,722



4,358Deposits by central banks and banks


337



16,614



2



11,763







28,716Customer accounts


25,921



19,299



12,918



5,674



1,048



64,860Debt securities in issue






2,539



1,177



7,005



942



11,663Subordinated liabilities and other capital instruments










160



2,080



123



2,363Other financial liabilities


534



3















53726,792



39,027



14,737



28,106



3,835



112,4972011Repayable
on demand


3 months
or less but not repayable
on demand


1 year or less
but over 3 months


5 years
or less but over 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mFinancial liabilities(1)Disposal groups held for sale






















Derivative financial instruments






1,027



532



1,625



1,807



4,991Deposits by central banks and banks


712



33,124







3,195







37,031Customer accounts


26,065



19,072



11,315



5,212



152



61,816Debt securities in issue






2,357



3,916



7,912



2,829



17,014Subordinated liabilities and other capital instruments










160



2,240



121



2,521Other financial liabilities


474



15















48927,251



55,595



15,923



20,184



4,909



123,862 (1)Financial liabilities included within disposal
groups are based on their undiscounted contractual maturity.








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61 Financial liabilities by undiscounted contractual maturity(continued) The undiscounted cash flows potentially payable under guarantees and similar contracts, included below within contingent liabilities, are classified on the basis of the
earliest date the facilities can be called. The Group is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. The Group expects that most guarantees it provides will expire unused. The Group has given commitments to provide funds to customers under undrawn facilities. The undiscounted cash flows have been classified on the basis of the earliest
date that the facility can be drawn. The Group does not expect all facilities to be drawn, and some may lapse before drawdown.  2012Payable on
demand


3 months
or less but not repayable
on demand


1 year or less
but over 3 months


5 years
or less but
over 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mContingent liabilities


1,561



















1,561Commitments


8,974



















8,97410,535



















10,5352011Payable on
demand


3 months
or less but not repayable
on demand


1 year or less
but over 3 months


5 years
or less butover 1 year


Over
5 years


Total m


 m


 m


 m


 m


 mContingent liabilities


2,009



















2,009Commitments


9,862



















9,86211,871



















11,871








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|LOGO |  | Notes to the financial statements |  | 






62 Report on directors remuneration and interests Commentary on the Companys policy with respect to directors remuneration is included in the Corporate Governance Statement on pages 179 to 181. Directors remuneration The following tables detail the total
remuneration of the Directors in office during 2012 and 2011:  2012Directors
fees
Parent and Irishsubsidiarycompanies(1)


Directorsfees
Non-Irishsubsidiarycompanies(2)


Salary


Annualtaxablebenefits(3)


Pensioncontribution(4)


TotalRemuneration

 000


 000


 000


 000


 000


 000Executive DirectorsBernard Byrne*










399



44



110



553David Duffy*










475







71



546874



44



181



1,099Non-Executive DirectorsSimon Ball


61



















61Declan Collier
(resigned as Director on 28 June 2012)


40



















40Tom Foley
(appointed 13 September 2012)


21



















21Peter Hagan
(appointed 26 July 2012)


27



















27David Hodgkinson(1(a))
(Chairman)


275



















275Jim OHara


92



















92Dr Michael Somers(1(b))
(Deputy Chairman)


150



















150Dick Spring


66



















66Tom Wacker(5)


83



25















108Catherine Woods


173



















173988



25















1,013Former DirectorsKieran Crowley(6)






49















49Stephen L Kingon(6)






46















46Anne Maher(7)


50



















50David Pritchard(6)






99















99Other(8)






















104Total






















2,460 *A reduction of 15% in total remuneration was applied to Bernard Byrne and David Duffy with effect from
1 September 2012.








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62 Report on directors remuneration and interests(continued) 2011Remuneration

Directors
fees -Parent and 
Irishsubsidiarycompanies 000


Directorsfees 
-Non-Irishsubsidiarycompanies 000


Remunerationfor otheractivities onbehalf of
the Company 000


Salary
 000


Annualtaxablebenefits 000


Pensioncontribution 000


Total 000Executive DirectorsBernard Byrne
(appointed 24 June 2011)














213



29



38



280David Duffy
(appointed 15 December 2011)














23







3



26David Hodgkinson
(remuneration as Executive Chairman from 1 January to 11 December 2011)














473



108







581709



137



41



887Non-Executive DirectorsSimon Ball
(appointed 13 October 2011)


6























6Declan Collier


71























71David Hodgkinson
(remuneration as Non-Executive Chairman from 12 to 31 December 2011)


15























15Stephen L Kingon
(resigned as Director on 26 July 2011)


76



37



















113Anne Maher
(resigned as Director on 26 July 2011)


85



11



















96Jim OHara


65























65David Pritchard
(resigned as Director on 26 July 2011)


47



92



















139Dr Michael Somers
(Deputy Chairman)


150























150Dick Spring


59























59Tom Wacker
(appointed 13 October 2011)


12























12Catherine Woods


138







138















276724



140



138















1,002Former DirectorsKieran Crowley


24



47



















71Other


























110Total


























2,070








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62 Report on directors remuneration and interests(continued) (1)
Fees paid to Non-Executive Directors: (a)
Mr David Hodgkinson was appointed Non-Executive Chairman with effect from 12 December 2011 and is paid a non-pensionable flat fee of
 275,000 per annum which includes remuneration for other services as a director of Allied Irish Banks, p.l.c.; (b)
Dr Michael Somers is Deputy Chairman and Chairman of the Board Risk Committee and is paid a non-pensionable flat fee of 
150,000 per annum which includes remuneration for other services as a director of Allied Irish Banks, p.l.c.; and (c)
All other Non-Executive Directors are paid a basic, non-pensionable fee in respect of service as a Director, payable at a rate of
 27,375 per annum (voluntarily reduced from  36,500 between December 2008 and February 2009), and
additional non-pensionable remuneration (subject also to an equivalent reduction) paid to any Non-Executive Director who: is the Chairman of the Audit Committee or the Remuneration Committee; is the Senior Independent Director, or performs
additional services, such as through membership of Board Committees or the board of a subsidiary company; (2)
Non-Executive Directors of the Parent Company who also serve as Directors of non-Irish subsidiaries are separately paid a non-pensionable flat fee, which is independently agreed and paid by the subsidiaries, in respect
of their service as a Director of those companies; (3)
Annual Taxable Benefits includes the payment of a car allowance, medical insurance and club subscriptions for part of the year. Following a comprehensive review of Pay and Benefits, undertaken during 2012 to
assist in reducing the Groups overall cost, allowances have been reduced or removed and company cars discontinued unless warranted by business mileage levels; (4)
Pension Contribution represents agreed payments to provide post-retirement pension benefits for Executive Directors from normal retirement date. The fees
of the Chairman, Deputy Chairman and Non-Executive Directors are non-pensionable; (5)
Mr Tom Wacker was appointed a Non-Executive Director of AIB Group (UK) plc on 12 April 2012 in respect of which he earns fees as outlined at (2) above; (6)
Mr Kieran Crowley, Mr Stephen L Kingon and Mr David Pritchard are former Non-Executive Directors of Allied Irish Banks, p.l.c. who have, since their resignations, continued as Non-Executive Directors of AIB Group (UK)
plc, of which Mr Pritchard is Chairman, in relation to which they continue to earn fees as outlined at (2) above; (7)
Ms Anne Maher is a former Non-Executive Director of Allied Irish Banks, p.l.c. who has, since her resignation, continued as a Director of the Corporate Trustee of the AIB Irish Pension Scheme and of the AIB Defined
Contribution Scheme, in respect of which she continues to earn fees as outlined at (2) above; (8)
Other represents the payment of pensions to former Directors or their dependants granted on an ex-gratia basis and are fully provided for in the Statement of Financial Position.








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62 Report on directors remuneration and interests(continued) Interests in shares The beneficial interests of the Directors and the Secretary
in office at 31 December 2012, and of their spouses and minor children, in the Companys ordinary shares are as follows:  Ordinary shares

31 December2012


1 January2012*Directors:Simon Ball






Bernard Byrne






David Duffy






Tom Foley


100



100Peter Hagan






David Hodgkinson






Jim OHara






Dr Michael Somers


13,437



13,437Dick Spring






Tom Wacker






Catherine Woods






Secretary:David OCallaghan


7,490



7,490 *or date of appointment, if later Throughout 2012, the Directors were again prohibited from trading in the Companys shares due to significant ongoing corporate activity and close periods in advance
of public disclosures. The following table sets forth the beneficial interests of the Directors and Leadership Team members of AIB as a group (including their
spouses and minor children) at 31 December 2012.  Title of class

Identity of
person or group

Numberowned


Percentof classOrdinary shares

Directors and Leadership Team members of AIB as a group


53,553



* *  The total shares in issue at 31 December 2012, excluding 35,680,114 treasury shares, was
517,117,096,249.








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62 Report on directors remuneration and interests(continued) Share options There were no options to subscribe for ordinary shares
outstanding in favour of the Executive Directors at 31 December 2012. Details of the Secretarys options to subscribe for ordinary shares are given below. Information on the Share Option Schemes, including policy on the granting of
options, is given in note 11. The vesting of these options is dependent on Earnings Per Share (EPS) targets being met. Subject thereto, the options outstanding at 31 December 2012 are exercisable at various dates in 2013 and 2014.
Details are shown in the Register of Directors and Secretarys Interests, which may be inspected by shareholders at the Companys Registered Office.  Secretary:

Date
of grant


Numberof shares


Option Price


Vested/unvested


Exercise
periodDavid OCallaghan


23.04.2003



2,500



13.30



Vested



23.04.2006 - 201328.04.2004



2,500



12.60



Vested



28.04.2007 - 2014 No share options were granted or exercised during 2012. The Chairman and the Non-Executive Directors do not participate in the share options plans. The aggregate number of share options outstanding at 31 December 2012 in
the names of executive directors and members of the Leadership Team (Senior Executive Officers), was 40,000 as follows:  Outstanding as at 31 December 2011:


124,985Add: Options held by Senior Executive Officers appointed during 2012


Add: Options granted during 2012


Less: Options exercised during 2012


Less: Options lapsed during 2012


(18,500
)Less: Options held by Senior Executive Officers who left office during 2012


(66,485
)Options outstanding as at 31 December 2012


40,000
 Performance shares There were no
conditional grants of awards of ordinary shares outstanding to Executive Directors or the Secretary at 31 December 2012. Apart from the interests set out
above, the Directors and Secretary in office at year-end, and their spouses and minor children, have no other interests in the shares of the Company. There were no
changes in the Directors and Secretarys interests shown above between 31 December 2012 and 26 March 2013. The year-end closing price, on the
Enterprise Securities Market of the Irish Stock Exchange, of the Companys ordinary shares was  0.05 per share; during the year, the price ranged
from  0.05 to  0.14. Service contracts There are no service contracts in force for any Director with the Company or any of its subsidiaries.








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63 Related party transactions Related parties of the Group and Allied Irish Banks, p.l.c. (AIB) include subsidiary undertakings, associate undertakings and joint undertakings,
post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered a related party by virtue of its effective control of AIB. (a) Transactions with subsidiary undertakings AIB is the ultimate parent
company of the Group. Banking transactions are entered into by AIB with its subsidiaries in the normal course of business. These include loans, deposits, provision of derivative contracts, foreign currency transactions and the provision of
guarantees on an arms length basis. Balances between AIB and its subsidiaries are detailed in notes h, k, m, q and r to the parent company financial statements. In accordance with IAS 27 Consolidated and Separate Financial
Statements, transactions with subsidiaries have been eliminated on consolidation. (b) Associated undertakings and joint ventures From time to time, the Group provides certain banking and financial services for associated undertakings. These transactions are made in the ordinary course of business
on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons and do not involve more than the normal risk of collectability or present other unfavourable
features. Details of loans to associates are set out in note h to the parent company financial statements, while deposits from associates are set out in notes q and r.  (c)
Sale and leaseback of Blocks E, F, G and H Bankcentre to Aviva Life and Pensions Ireland Limited (ALP) On 9 June 2006, the Group agreed the sale and leaseback of blocks E, F, G, and H at Bankcentre. The lease is for 20 years. The blocks were sold to ALP for a total
consideration of  170.5 million. AIB hold a 24.99% share of Aviva Life Holdings Ireland Ltd. (ALH) which is the holding company for Ark Life
and ALP. The agreed annual rent payable on blocks E, F, G and H is  7.1 million. The rent is paid through Wallkav Ltd, a wholly owned subsidiary of AIB.  (d)
Provision of banking and related services to Group Pension schemes, unit trusts and investment funds managed by Group companies The Group provides certain banking and financial services including asset management and money transmission services for the AIB Group Pension schemes and also for unit
trusts and investment funds managed by Group companies. Such services are provided in the ordinary course of business, on substantially the same terms, including interest rates, as those prevailing at the time for comparable transactions with other
persons. During the year, AIB agreed to make certain contributions to the pension scheme which were settled through the transfer to the AIB Group Irish Pension
Scheme of interests in an SPV owning loans and receivables previously transferred at fair value from the Group. A subsidiary of AIB was appointed as a service provider for the loans and receivables transferred in return for a servicing fee at a
market rate (note 55). (e) Compensation of key management personnel The
following disclosures are made in accordance with the provisions of IAS 24 Related Party Disclosures, in respect of the compensation of key management personnel. Under IAS 24, Key management personnel are defined as comprising Executive and
Non-Executive Directors together with Senior Executive Officers, namely, the members of the Leadership Team (see pages 168 to 170). The figures shown below include (a) the figures separately reported in respect of Directors remuneration
in the Report on Directors Remuneration and Interests in note 62, (b) in respect of five former Senior Executive Officers, their remuneration for the period between the conclusion of their membership of the Leadership Team and
their departure from the organisation or 31 December 2012.  Group


Allied Irish Banks, p.l.c.2012
 m


2011
 m


2012
 m


2011  mShort-term employee benefits(1)


5.7



5.1



4.9



4.7Post-employment benefits(2)


0.7



0.3



0.5



0.2Termination benefits(3)


0.5







0.5



Total


6.9



5.4



5.9



4.9 (1)Comprises (a) in the case of Executive Directors
and Senior Executive Officers: salary, medical insurance, benefit-in-kind arising from preferential loans and use of company car (or payment in lieu), and other short-term benefits; and (b) in the case of Non-Executive Directors: directors
fees. (2)Comprises payments to defined benefit or defined contribution pension
schemes, in accordance with actuarial advice, to provide post-retirement pensions from normal retirement date. (3)Comprises severance payments made on benefit accrued to two Senior Executive Officers who left during 2012 under the voluntary severance programme.








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63 Related party transactions(continued) (f) Transactions with Key management personnel At 31 December 2012,
deposit and other credit balances held by Key management personnel, namely Executive and Non-Executive Directors and Senior Executive Officers, in office during the year amounted to  10.0 million (2011:  6.6 million). Loans to Key management
personnel are made in the ordinary course of business on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons of similar standing not connected with the
Group, and do not involve more than the normal risk of collectability or present other unfavourable features. Loans to executive directors and senior executive officers are also made in the ordinary course of business, on terms available to other
employees in the Group generally, in accordance with established policy, within limits set on a case by case basis. Details of transactions with Key management
personnel, and connected parties where indicated, for the years ended 31 December 2012 and 2011 are as follows: (i) Current Directors  2012Balance at31 December2011


Amountsadvancedduring 2012


Amountsrepaidduring 2012


Currencymovements


Balance at31 December2012 000


 000


 000


 000


 000David Duffy:Loans




1,432







84







1,348Overdraft/Credit card*




1



n/a



n/a



n/a



3Total




1,433



n/a



n/a



n/a



1,351Interest charged during 2012




















21Maximum debit balance during 2012




















1,468Tom Foley:Loans




















Overdraft/Credit card*




5



n/a



n/a



n/a



Total




5



n/a



n/a



n/a



Interest charged during 2012




















Maximum debit balance during 2012




















6Jim OHara:Loans




















Overdraft/Credit card*








n/a



n/a



n/a



Total








n/a



n/a



n/a



Interest charged during 2012




















1Maximum debit balance during 2012




















36Dr Michael Somers:Loans




















Overdraft/Credit card*




2



n/a



n/a



n/a



1Total




2



n/a



n/a



n/a



1Interest charged during 2012




















Maximum debit balance during 2012




















3Dick Spring:Loans




















Overdraft/Credit card*




7



n/a



n/a



n/a



9Total




7



n/a



n/a



n/a



9Interest charged during 2012




















Maximum debit balance during 2012




















17 *Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are
revolving in nature (i.e. they may be drawn, repaid and redrawn up to their limit over the course of the year).








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63 Related party transactions(continued) (i) Current Directors  2012Balance at31 December2011


Amountsadvancedduring 2012


Amountsrepaidduring 2012


Currencymovements


Balance at31 December2012 000


 000


 000


 000


 000Catherine Woods:Loans




106







9







97Overdraft/Credit card*








n/a



n/a



n/a



Total




106



n/a



n/a



n/a



97Interest charged during 2012




















2Maximum debit balance during 2012




















106As at 31 December 2012, guarantees entered into by Catherine Woods in favour of the Group amounted to  0.1 million. Simon Ball, Bernard Byrne, Peter Hagan, David Hodgkinsonand Tom Wackerhad no facilities with the Group during 2012. (ii) Former Directors who were in office during the year Declan Collier
had no facilities with the Group during 2012. (iii) Senior Executive Officers in office during the year (Aggregate of 14 persons (2011: 9)):  2012Balance at31 December2011


Amountsadvancedduring 2012


Amountsrepaidduring 2012


Currencymovements


Balance at31 December2012 000


 000


 000


 000


 000Loans




1,739



51



234







1,556Overdraft/Credit card*




74



n/a



n/a



n/a



39Total




1,813



n/a



n/a



n/a



1,595Interest charged during 2012




















56Maximum debit balance during 2012




















1,905 (iv) Aggregate amounts outstanding at year-end  Loans, overdrafts/credit cards31 December 2012
 000


31 December 2011
 000Directors (2012: 6 persons; 2011: 5 persons)






1,458



1,563Senior Executive Officers (2012: 9 persons; 2011: 9 persons)






1,595



2,3773,053



3,940 As at 31 December 2012, guarantees entered into by 1 Director and 2 Senior Executive Officers in favour of the Group amounted to  1.4 million in aggregate (2011:  1.9 million by 1 Director and 3 Senior Executive Officers). As at
31 December 2012, one Senior Executive Officer had entered into a foreign exchange forward contract for £120,000. (v) Connected persons The aggregate of loans to connected persons of Directors in office as at 31 December 2012, as defined in Section 26 of the Companies Act 1990, are
as follows (aggregate of 18 persons; 2011: 17 persons):  2012Balance at31 December2011


Amountsadvancedduring 2012


Amountsrepaidduring 2012


Currencymovements


Balance at31 December2012 000


 000


 000


 000


 000Loans




1,055







224







831Overdraft/Credit card*




107



n/a



n/a



n/a



22Total




1,162



n/a



n/a



n/a



853Interest charged during 2012




















34Maximum debit balance during 2012




















1,183 No impairment charges or provisions have been recognised in respect of any of the above loans or facilities detailed in (i) to
(v) and all interest that has fallen due on all of these loans or facilities has been paid. *Amounts advanced and repaid are not shown for overdraft/credit
card facilities as such facilities are revolving in nature (i.e. they may be drawn, repaid and redrawn up to their limit over the course of the year).








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63 Related party transactions(continued) (i) Directors in office during the year 2011  2011Balance at31 December2010


Amountsadvancedduring 2011


Amountsrepaidduring 2011


Currencymovements


Balance at31 December2011 000


 000


 000


 000


 000David Duffy:Loans




1,512







80







1,432Overdraft/Credit card*




14



n/a



n/a



n/a



1Total




1,526



n/a



n/a



n/a



1,433Interest charged during 2011




















27Maximum debit balance during 2011




















1,551Jim OHara:Loans




















Overdraft/Credit card*








n/a



n/a



n/a



Total








n/a



n/a



n/a



Interest charged during 2011




















Maximum debit balance during 2011




















Dr Michael Somers:Loans




















Overdraft/Credit card*




3



n/a



n/a



n/a



2Total




3



n/a



n/a



n/a



2Interest charged during 2011




















Maximum debit balance during 2011




















5Dick Spring:Loans




















Overdraft/Credit card*




5



n/a



n/a



n/a



7Total




5



n/a



n/a



n/a



7Interest charged during 2011




















Maximum debit balance during 2011




















14Catherine Woods:Loans




115







9







106Overdraft/Credit card*








n/a



n/a



n/a



Total




115



n/a



n/a



n/a



106Interest charged during 2011




















2Maximum debit balance during 2011




















115 As at 31 December 2011, guarantees entered into by Catherine Woods in favour of the Group amounted to  0.1 million. Simon Ball, Bernard Byrne, Declan Collier, David Hodgkinsonand Tom Wackerhad no facilities with the Group during 2011. *Amounts advanced and repaid are not shown for
overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may be drawn, repaid and redrawn up to their limit over the course of the year).








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63 Related party transactions(continued) (ii) Former Directors who were in office during the year  2011Balance at31 December


Amountsadvanced


Amountsrepaid


Currencymovements


Balance at31 December2010


during 2011


during 2011





2011 000


 000


 000


 000


 000Stephen Kingon:Loans


28







28







Overdraft/Credit card*


12



n/a



n/a



n/a



15Total


40



n/a



n/a



n/a



15Interest charged during 2011


















1Maximum debit balance during 2011


















44 Anne Maher and David Pritchard had no facilities with the Group during 2011. (iii) Senior Executive Officers in office during the year (Aggregate of
9 persons; (2010: 10)):  2011Balance at31 December


Amountsadvanced


Amountsrepaid


Currencymovements


Balance at31 December2010


during 2011


during 2011





2011 000


 000


 000


 000


 000Loans


2,651







347



1



2,303Overdraft/Credit card*


53



n/a



n/a



n/a



74Total


2,704



n/a



n/a



n/a



2,377Interest charged during 2011


















83Maximum debit balance during 2011


















2,776 (iv) Aggregate amounts outstanding at year-end  Loans, overdrafts/credit cards31 December 2011 000


31 December 2010 000Directors (2012: 6 persons; 2011: 5 persons)


1,563



2,857Senior Executive Officers (2012: 9 persons; 2011: 9 persons)


2,377



3,0543,940



5,911 As at 31 December 2011, guarantees entered into by 1 Director and 3 Senior Executive Officers in favour of the Group amounted to  1.9 million in aggregate (2010:  1.1 million). *Amounts advanced and repaid are not shown for overdraft/credit card facilities as such facilities are revolving in nature (i.e. they may be drawn, repaid and redrawn up
to their limit over the course of the year).








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63 Related party transactions(continued) (v) Connected persons The aggregate of loans to connected persons of
Directors in office as at 31 December 2011, as defined in Section 26 of the Companies Act 1990, are as follows (aggregate of 17 persons (2010: 18)):  2011Balance at31 December


Amountsadvanced


Amountsrepaid


Currencymovements


Balance at31 December2010


during 2011


during 2011





2011 000


 000


 000


 000


 000Loans


1,100







53







1,047Overdraft/Credit card*


32



n/a



n/a



n/a



107Total


1,132



n/a



n/a



n/a



1,154Interest charged during 2011


















47Maximum debit balance during 2011


















1,244 No impairment charges or provisions have been recognised in respect of any of the above loans or facilities detailed in (i) to
(v) and all interest that has fallen due on all of these loans or facilities has been paid. *Amounts advanced and repaid are not shown for overdraft/credit card
facilities as such facilities are revolving in nature (i.e. they may be drawn, repaid and redrawn up to their limit over the course of the year). (g) Summary of
relationship with the Irish Government The Irish Government, as a result of both its investment in AIBs 2009 Preference shares and AIBs participation
in Government guarantee schemes, became a related party of AIB in 2009. Following the various ordinary/CNV share issues to the NPRFC during 2010 and 2011, AIB is under the control of the Irish Government. AIB enters into normal banking transactions with the Irish Government and many of its controlled bodies on an arms length basis. In addition, other transactions
include the payment of taxes, pay related social insurance, local authority rates, and the payment of regulatory fees as appropriate. Following the crisis in the
Irish banking sector and the stabilisation measures adopted since 2008, the involvement of the Irish Government in AIB and in other Irish banks has been and continues to be considerable. This involvement is outlined below. Rights and powers of the Irish Government and the Central Bank of Ireland The Irish Minister for Finance (the Minister) and the Central Bank of Ireland (the Central Bank) have significant rights and powers over the
operations of AIB (and other financial institutions) arising from the various stabilisation measures. These rights and powers relate to, inter alia: 

The acquisition of shares in other institutions; 

Maintenance of solvency ratios and compliance with any liquidity and capital ratios that the Central Bank, following consultation with the Minister, may direct; 

The appointment of non-executive directors and board changes; 

The appointment of persons to attend meetings of various committees; 

Restructuring of executive management responsibilities, strengthening of management capacity and improvement of governance; 

Declaration and payment of dividends; 

Restrictions on various types of remuneration; 

Buy-backs or redemptions by the Group of its shares; 

The manner in which the Group extends credit to certain customer groups; and 

Conditions regulating the commercial conduct of AIB, having regard to capital ratios, market share and the Groups balance sheet growth. In addition, various other initiatives such as strategies/codes of conduct for dealing with mortgage and other consumer/business loan arrears are set out in the Risk
section of this report. Therelationshipof the Irish Government with AIB is outlined under the following headings: 

Capital investments; 

Guarantee schemes; 

NAMA; 

Funding support; 

PCAR/PLAR;








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63 Related party transactions(continued) The relationship of the Irish Government with AIB is outlined under the following headings: 

Credit Institutions (Stabilisation) Act 2010: (i)
Direction Order; (ii)
Transfer Order; (iii)
Subordinated Liabilities Order; 

Central Bank and Credit Institutions (Resolution) Act 2011; and 

Relationship framework which was signed in March 2012 There have been no significant changes to the various aspects of
this relationship since 31 December 2011.  

Capital investments Ordinary shares At 31 December 2012, the Irish Government, through the NPRFC, held 99.8% of the ordinary share capital in AIB (2011: 99.8%). However, the number of shares held increased by 3.624 billion since 2011 through the non-payment of the dividend of  280 million on the preference share capital as noted below. The NPRFC now holds 516.2 billion ordinary shares (31 December 2011: 512.6 billion shares). See
note 45 for details of the Governments investment in the ordinary shares of AIB. 2009 Preference Shares At 31 December 2012, the Irish Government, through the NPRFC, held
 3.5 billion capital (2011: 3.5 billion) in the form of non-cumulative preference shares (2009
Preference Shares). The annual cash dividend amounting to  280 million was not paid in either 2012 or 2011, however, the dividend entitlement was satisfied by way of a Bonus issue of 3.624
billion ordinary shares (2011: 1.247 billion). The terms and conditions attaching to the 2009 Preference Shares are outlined in note 45. Contingent capital notes On 27 July 2011,
AIB issued  1.6 billion of contingent capital notes at par to the Minister. Details of this transaction are set out in note 44. Capital contributions On 28 July 2011,
the Minister and the NPRFC made capital contributions totalling  6.054 billion to AIB for nil consideration. For further details, see note 51.  

Guarantee schemes The European Communities (Deposit Guarantee Schemes) Regulations 1995
have been in operation since 1995. These regulations guarantee certain retail deposits up to a maximum of  100,000. In addition, since September 2008, the
Irish Government has guaranteed relevant deposits and debt securities of AIB through the Credit Institutions (Financial Support) Scheme 2008 (the CIFS scheme) which expired in September 2010 and the Credit Institutions (Eligible
Liabilities Guarantee) Scheme 2009 (ELG Scheme) which is outlined below. ELG Scheme The ELG Scheme is a temporary measure which was introduced in response to the financial crisis. On 21 January 2010, Allied Irish Banks, p.l.c., including its international branches and subsidiaries, AIB Group (UK) p.l.c., AIB Bank (CI) Limited
and Allied Irish Banks North America Inc., became participating institutions for the purposes of the ELG Scheme. The Minister stands as guarantor of all guaranteed liabilities of a participating institution. The ELG Scheme is intended to facilitate
the ability of participating credit institutions in Ireland to issue certain debt securities and take deposits with a maturity of up to five years for pre-defined periods. To date, the ELG Scheme has been reviewed on a six monthly basis to determine
whether the financial support provided by the ELG Scheme continues to be necessary. However, on 26 February 2013, the Minister announced that the ELG Scheme will end for all new liabilities, with effect from midnight on 28 March 2013 (note
69). Eligible liabilities under the ELG Scheme comprise the following: 

all deposits to the extent not covered by deposit protection schemes in Ireland or in any other jurisdiction; 

senior unsecured certificates of deposit; 

senior unsecured commercial paper; 

other senior unsecured bonds and notes; and 

other forms of senior unsecured debt which may be specified by the Minister consistent with European Union State aid rules and the European Commissions Banking Communication (2008/C 270/02) and subject to prior
consultation with the European Commission. Dated subordinated debt and asset-covered securities issued after a covered institution
joined the ELG Scheme are not guaranteed under the ELG Scheme. The total liabilities guaranteed under the ELG Scheme at 31 December 2012 amounted to 
34 billion ( 40 billion at 31 December 2011).








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63 Related party transactions(continued) 

Guarantee schemes Participating institutions must pay a fee to the Minister in respect of
each liability guaranteed under the ELG Scheme. Details of the total charge for 2012 and 2011 are set out in note 3. Participating institutions will also be required to indemnify the Minister for any costs and expenses of the Minister and for any
payments made by the Minister under the ELG Scheme which relate to the participating institutions guarantee under the ELG Scheme. AIB Group
(UK) plc and AIB Offshore commenced withdrawal from the ELG Scheme effective 18 August 2012 and 30 August, 2012, respectively. However, deposits opened before these dates have been guaranteed for the remainder of their maturity.  

NAMA AIB was designated a participating institution under the NAMA Act in February 2010.
Under this Act, AIB transferred financial assets to NAMA for which it received consideration from NAMA in the form of NAMA senior bonds and subordinated NAMA bonds which are detailed in notes 8, 32 and 33. In addition, AIB acquired NAMA senior bonds
in 2011 as part of the Anglo transaction ( 11,854 million fair value at acquisition date) and the EBS transaction
( 301 million carrying value at acquisition date), details of which are set out in notes 22 and 23. AIB also acquired  6 million in subordinated NAMA
bonds, as part of the EBS transaction (note 23). The NAMA senior bonds are guaranteed by the Irish Government. Following on the transfer of
financial assets to NAMA, a contingent liability/contingent asset arises in relation to: 

final settlement amounts with NAMA on assets transferred; 

a series of indemnities which AIB has provided to NAMA on transferred assets; 

a possible requirement for AIB to share NAMA losses on dissolution of NAMA. Details of the contingent
liability/asset are set out in note 53. Investment in National Asset Management Agency Investment Ltd (NAMAIL) In March 2010, a then subsidiary of Allied Irish Banks, p.l.c. made an equity investment in 17 million B shares of NAMAIL, a special
purpose entity established by NAMA. The total investment amounted to  17 million, of which 
12 million was invested on behalf of the AIB Group pension scheme (fair value at 31 December 2012 of  6 million), with the remainder invested on behalf of clients.  

Funding support AIB received funding from the Central Bank throughout the year through the
ECB Monetary Policy Operation Sale and Repurchase Agreements. The total funding amounted to  22.2 billion at 31 December 2012 (2011:  30.8 billion). These agreements were for maturities of between 7 days and 3 months, apart from the  11.25 billion (2011:
 3 billion) in the three year LTRO (note 39) which will mature in January and February 2015. The interest rates on these facilities are set by the Central Bank and advised to AIB. These facilities,
together with other assets and liabilities with Irish Government entity counterparties, are set out below.  

PCAR/PLAR On 31 March 2011, the Central Bank of Ireland published the Financial
Measures Programme Report which detailed the outcome of its review of the capital (PCAR) and funding requirements (PLAR) of the domestic Irish banks. The PCAR/PLAR assessments followed the announcement of the EU-IMF Programme for Ireland in
November 2010, in which the provision of an overall amount of  85 billion in financial support for the sovereign was agreed in principle. Up to  35 billion of this support was earmarked for the banking system,  10 billion of which was for immediate recapitalisation of the banks with the remaining  25 billion to be provided on a contingency basis. Arising from the 2011 PCAR and PLAR assessments, AIB, including EBS, was required to raise  14.8 billion in total
capital (including 1.6 billion in contingent capital), all of which was subsequently raised.  

Credit Institutions (Stabilisation) Act 2010 The Credit Institutions (Stabilisation) Act
2010 was passed into Irish law on 21 December 2010. The Act provides the legislative basis for the reorganisation and restructuring of the Irish banking system agreed in the joint EU/IMF Programme for Ireland (the Programme). This
will allow the Minister to take the actions required to bring about a domestic retail banking system that is proportionate to and focused on the Irish economy. The Act provides broad powers to the Minister (in consultation with the Governor of the Central Bank) to act on financial stability grounds to effect the
restructuring actions and recapitalisation measures envisaged in the Programme. The Act applies to banks which have received financial support from the State, building societies and credit unions. Given the exceptional nature of the powers contained
in the Act, the powers are time-limited and were scheduled to expire on 31 December 2012. However, in January 2013, the Minister extended the period of effectiveness of the Act for a further period of two years until 31 December 2014.








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63 Related party transactions(continued) 

Credit Institutions (Stabilisation) Act 2010 The powers provided in the Act allow the
Minister to implement key aspects of the agreed Programme for bank restructuring and include the issue of direction orders, special management orders, subordinated liabilities orders and transfer of assets and liabilities orders. In addition, the
Act gives the Minister broad powers in relation to directors and officers and their appointment/removal/duties. Various other terms are also imposed on relevant financial institutions as a condition for financial support. Since the enactment of this legislation, the Minister has invoked certain of his powers under the Act in relation to AIB as follows: (i)

Direction Order On 23 December
2010, the Irish High Court, on application from the Minister, directed AIB, inter alia, to increase its authorised share capital; to issue ordinary and CNV shares to the NPRFC; to cancel its listing on the Main Securities Market and to apply for
listing on the Enterprise Securities Market (ESM) of the Irish Stock Exchange; and to complete the sale of its Polish interests to Banco Santander (note 18). Arising from this Order, on 23 December 2010, AIB issued ordinary and CNV
shares to the NPRFC for net proceeds of 3.7 billion. (ii)

Transfer Order On 24 February 2011,
following an application by the Minister, the Irish High Court issued a transfer order for the immediate transfer of certain deposits and corresponding assets from Anglo Irish Bank Corporation to AIB (note 22). (iii)

Subordinated Liabilities Order On
14 April 2011, following an application by the Minister under section 29 of the Credit Institutions (Stabilisation) Act 2010, the Irish High Court issued a Subordinated Liabilities Order (the SLO) in relation to all outstanding
subordinated liabilities and other capital instruments (including certain tier 1 capital instruments), with the consent of AIB. The Irish High Court declared the SLO effective as of 22 April 2011. The effect of the SLO was to amend the terms of
certain subordinated liabilities and other capital instruments. Details of the SLO are set out in note 44. Acquisition of EBS Limited
(EBS) On 31 March 2011, the Minister proposed the combination of AIB and EBS (formerly EBS Building Society) to form one of the
two Pillar banks. On 26 May 2011, AIB entered into an agreement with EBS, the Minister and the NTMA to cquire EBS for a consideration of  1 (one
euro). The acquisition was effective from 1 July 2011. Details of this transaction are set out in note 23.  

Central Bank and Credit Institutions (Resolution) Act 2011 The Central Bank and Credit
Institutions (Resolution) Act 2011 was signed into law on 20 October 2011 and became effective on 28 October 2011. This legislation provides the Central Bank with additional powers to achieve an effective and efficient resolution regime
for credit institutions that are failing or likely to fail and that is effective in protecting the Exchequer and the stability of the financial system and the economy. The Act gives the Central Bank power to take control of banks, appoint managers to run them and remove directors, staff and consultants, and to move
their deposits and loans to other banks. It provides for the establishment of a Credit Institution Resolution Fund which would provide a source of funding for the resolution of financial instability or in the event of an imminent serious threat to
the financial stability of an authorised credit institution. Authorised credit institutions will be obliged to contribute to the resolution fund. The Act provides for the establishment of Bridge-Banks for the purpose of holding assets or liabilities which have been transferred under a
transfer order. Bridge-Banks are only intended to hold such assets or liabilities on a temporary basis pending onward transfer as soon as possible. The Central Bank is empowered to make special management orders in relation to an authorised credit institution, or in relation to a subsidiary or
holding company of the authorised credit institution in certain circumstances. The Act also provides powers to the Central Bank regarding the liquidation of authorised credit institutions. Authorised credit institutions may also be directed to
prepare a recovery plan setting out actions that could be taken to facilitate the continuation or secure the business or part of the business of that institution. The legislation which provides for a permanent statutory regime under which the Central Bank may exercise intervention powers when a relevant credit
institution is in difficulty is expected, in due course, to replace the temporary emergency provisions of the Credit Institutions (Stabilisation) Act 2010 outlined above.  

Relationship framework In order to comply with contractual commitments imposed on AIB in
connection with its recapitalisation by the Irish State and with the requirements of EU state aid applicable in respect of that recapitalisation, a relationship framework was entered into between the Minister and AIB in March 2012. This provides the
framework under which the relationship between the Minister and AIB is governed. Under the relationship framework, the authority and responsibility for strategy and commercial policies (including business plans and budgets) and conducting AIBs
day-to-day operations rest with the Board of AIB and its management team. However, the Board is required to obtain the prior written consent of the Minister, or to consult with the Minister, in respect of certain material matters, such as material
disposals.








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63 Related party transactions(continued) Funding support Throughout the financial crisis, the Irish Government has
provided guarantees under the CIFS (expired September 2010) and ELG schemes as outlined on the previous page. In addition, through the Central Bank, the Irish Government has provided direct funding to the Irish banking sector as follows: 

AIB has borrowings from the Central Bank as part of Eurosystem. These borrowings are under ECB Monetary Policy Operation Sale and Repurchase Agreements and amount to  22.2 billion (2011:  30.8 billion). AIB Mortgage Bank has Nil (2011: Nil) with the Central Bank under the same facility. 

At 31 December 2012, AIB had no borrowings from the Central Bank under non-standard liquidity facilities. The
interest rate on these facilities is set by the Central Bank and advised to AIB on each rollover date and at 31 December 2012 was 0.75%, being the current ECB refinancing rate. At 31 December 2012, the amounts outstanding totalling  22.2 billion
(2011:  30.8 billion) are included within Deposits by central banks and banks in the table below. See note 39 for details of collateral. The following table outlines the balances held with Irish Government entities(1) at 31 December 2012 and 31 December 2011, together with the highest balances
held at any point during the year.  2012


2011Balance


Highest(2)


Balance


Highest(2)balance held





balance heldNote


 m


 m


 m


 mAssetsCash and balances at central banks


a



118



4,250



228



2,618Derivative financial instruments






107



112



104



106Loans and receivables to banks


b



107



5,019



423



2,137Loans and receivables to customers






4



4



11



19NAMA senior bonds


c



17,387



19,860



19,856



19,975Financial investments available for sale


d



7,635



7,697



5,349



6,151Total assets






25,358







25,9712012


2011Balance


Highest(2)


Balance


Highest(2)balance held





balance held m


 m


 m


 mLiabilitiesDeposits by central banks and banks


e



22,220



37,836



31,133



47,916Customer accounts






1,220



1,493



176



11,846Derivative financial instruments






53



80



15



31Subordinated liabilities and other capital instruments


f



1,237



1,237



1,177



1,177Total liabilities






24,730







32,501 (1)Includes all departments of the Irish Government
located in the State and embassies, consulates and other institutions of the Irish Government located outside the State. The Post Office Savings Bank (POSB) and the National Treasury Management Agency (NTMA) are included. (2)The highest balance during the year, together with the outstanding balance
at the end of each year, is considered the most meaningful way of representing the amount of transactions that have occurred between AIB and the Irish Government. Substantially all of the above balances relate to Allied Irish Banks, p.l.c..  a
Cash and balances at the central banks represent the minimum reserve requirements which AIB is required to hold with the Central Bank. Balances on this account can fluctuate significantly due to the reserve requirement
being determined on the basis of the institutions average daily reserve holdings over a one month maintenance period. The Group is required to maintain a monthly average Primary Liquidity balance which at 31 December 2012 was  552 million. b
The balances on loans and receivables to banks include statutory balances with the Central Bank as well as overnight funds placed. c
NAMA senior bonds were received as consideration for loans transferred to NAMA and as part of the Anglo and EBS transactions. These are detailed in notes 32, 22 and 23 and under NAMA Programme above.








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63 Related party transactions(continued) Funding support d
Financial investments available for sale comprise  7,588 million (2011: 
5,217 million) in Irish Government securities held in the normal course of business and NAMA subordinated bonds which have a fair value at 31 December 2012 of  47 million (31 December 2011:  132 million) detailed above under NAMA Programme. e
This relates to funding received from the Central Bank which is detailed under Funding Support above, the total of which amounts to
 22,220 million (2011:  30,831 million). f
On 27 July 2011, AIB issued  1.6 billion of contingent capital notes at par to the Minister for Finance, the fair value
of these notes at initial recognition was  1,153 million (note 44). All other balances, both assets
and liabilities are carried out in the ordinary course of banking business on normal terms and conditions. Local government(1) During 2012 and 2011, AIB entered into banking transactions in the normal course of business with local government bodies. These transactions include the granting of
loans and the acceptance of deposits, and clearing transactions. Commercial semi-state bodies(2) During 2012, AIB entered into banking transactions in the normal course of business with semi-state bodies. These transactions principally include the granting of loans
and the acceptance of deposits as well as derivative transactions and clearing transactions. (1)This category includes local authorities, borough corporations, county borough councils, county councils, boards of town commissioners, urban district councils, non-commercial public sector
entities, public voluntary hospitals and schools. (2)Semi-state bodies is the
name given to organisations within the public sector operating with some autonomy. They include commercial organisations or companies in which the State is the sole or main shareholder.








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63 Related party transactions(continued) Financial institutions under Irish Government control/significant influence Certain financial institutions are related parties to AIB by virtue of the Government either controlling or having a significant influence over these institutions. The
following institutions are controlled by the Irish Government: -

Irish Bank Resolution Corporation Limited (In Special Liquidation); -

Permanent tsb plc; and -

Irish Life Group In addition, the Irish Government is deemed to have significant influence over Bank of Ireland. Transactions with these institutions are normal banking transactions entered into in the ordinary course of cash management business under normal business terms. The
transactions constitute the short-term placing and acceptance of deposits, derivative transactions, investment in available for sale debt securities and repurchase agreements. At 31 December 2012 and 31 December 2011, the following balances were outstanding in total to these financial institutions:  2012Balance m


2011 Balance  mAssetsDerivative financial instruments


78



140Loans and receivables to banks(1)


80



122Financial investments available for sale(2)(3)


845



648LiabilitiesDeposits by central banks and banks(4)


58



108Derivative financial instruments(5)


47



92Customer deposits


114



 In connection with the acquisition by AIB Group of certain assets and liabilities of the former Anglo Irish Bank Corporation Limited (now
Irish Bank Resolution Corporation Limited (in Special Liquidation)) (IBRC), IBRC indemnified AIB Group for certain liabilities pursuant to a Transfer Support Agreement dated 23 February 2011. AIB Group has made a number of claims on
IBRC pursuant to the indemnity in an aggregate amount of c.  75 million. During 2012, AIB entered into a distribution agreement with Irish Life Group which will see Irish Life distribute its products through AIBs nationwide retail
banking network. (1)The highest balance in loans and receivables to banks
amounted to  616 million in respect of funds placed during the year (2011:  1,885 million). (2)During 2012, AIB incurred an impairment loss of Nil (2011:  132 million) due to liability management exercises by Irish banks, where either cash or equity was received in exchange for debt. (3)Includes equity securities issued in lieu of debt of  37 million (2011:  36 million). (4)The highest balance in deposits by central banks and banks amounted to  842 million in respect of funds received during the year (2011:  1,570 million). (5)The highest balance in customer deposits amounted to  121 million in respect of funds received during the year (2011: Nil).








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63 Related party transactions(continued) (h) Indemnities On 2 February 2004, AIB Capital Markets plc, a
wholly-owned subsidiary, extended the terms of an indemnity previously given to certain former directors, officers and employees of Govett Investment Management Ltd. (Govett) - now AIB Investment Management Limited - to Mr
Michael Buckley, the former Group Chief Executive, and Mr Colm Doherty, the former Group Managing Director; Mr Buckley is a former director of a split capital trust managed by Govett, and Mr Doherty is a former director of Govett. The aggregate
liability of AIB Capital Markets plc under the aforementioned indemnity is  10 million. The purpose of the indemnity is to protect the indemnified parties (or any of them) against any civil liability, loss and defence costs which they (or any of them) may
suffer by reason of any claim made against them relating to certain split capital or highly leveraged trusts previously managed by Govett and which previously would have been covered by insurance. Prior to July 2003, the Groups professional indemnity and directors and officers liability insurance provided cover in respect of the eventualities
mentioned in the previous paragraph. However, on renewal of that insurance on 1 July 2003, and in line with a general change introduced by the insurance industry, exclusions were imposed that removed that cover. By virtue of the terms of the
above mentioned indemnity, the indemnified parties now stand in the position they would have been in if those exclusions had not been imposed, except that the aggregate limit of liability under the indemnity is  10 million rather than the higher amount previously provided by the insurance. Allied Irish Banks, p.l.c. has indemnified the Directors of Allied Irish Banks Pensions Limited and AIB DC Pensions (Ireland) Limited, the trustees of the Groups
Republic of Ireland defined benefit pension scheme and defined contribution pension scheme, respectively, against any actions, claims or demands arising out of their actions as Directors of the trustee companies, other than by reason of wilful
default. (i) ALH investment Deposits received from ALH are set out
in note 40.








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64 Commitments Capital expenditure

2012  m


2011  mEstimated outstanding commitments for capital expenditure not provided for in the financial statements


7



11Capital expenditure authorised but not yet contracted for


29



40 Operating lease rentals The total of future
minimum lease payments under non-cancellable operating leases are set out in the following table.  2012
 m


2011  mOne year


73



80One to two years


68



69Two to three years


67



65Three to four years


64



64Four to five years


60



62Over five years


507



557Total


839



897 Following a programme of sale and leaseback transactions, the Group now holds a number of significant operating lease arrangements in
respect of branches and the headquarter locations. AIB Group leases the Bankcentre campus in Ballsbridge, Dublin 4 under three separate lease arrangements and also has a leasehold interest in the AIB International Centre located in
Dublins International Financial Services Centre (IFSC). The minimum lease terms remaining on the most significant leases vary from 1 years to 18
years. The average lease length outstanding until a break clause in the lease arrangements is approximately 9 years with the final contractual remaining terms ranging from 4 years to 35 years. There are no contingent rents payable and all lease payments are at market rates. The total of future minimum sublease payments expected to be received under non-cancellable subleases at the reporting date were
 8 million (2011:  6 million). Operating lease payments recognised as an expense for the year were 
94 million (2011:  67 million). Sublease income amounted to  6 million (2011:  1 million). For details of the sale and leaseback arrangements see note 14.








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65 Employees The average number
of employees by market segment for 2012 is set out below (excluding employees on career breaks and other unpaid long term leaves). The figures for Group segment include the following centralised functions: Group Services and Transformation; Chief
Financial Office; Chief Risk Office; Non-Core Unit; Corporate Affairs and Marketing; Office of Law Agent; and Office of Group Internal Audit. In 2011, average
employee numbers for discontinued operations and EBS reflect the fact that these were employees of the Group for only part of 2011 and are, accordingly, time apportioned.  2012


2011Continuing operationsPBB


6,285



6,017CICB


1,620



1,752AIB UK


2,234



2,282EBS


604



288Group


3,965



3,94314,708



14,282Discontinued operationsBZWBK






2,434Total


14,708



16,716 The 12 month average above of 14,708 is higher than the actual December 2012 figure of
13,429(1). This variance is a result of the impact that voluntary severance and early retirements, predominantly in the fourth quarter, have had on year end numbers. The geographical analysis of average employees for 2012 is as follows: 

Republic of Ireland  12,094; 

United Kingdom  2,523; 

United States of America  66; and 

Rest of World  25. See also page 402 in Additional information. (1)This figure excludes employees who departed between 19 December and
31 December 2012.








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66  Regulatory compliance During 2012, Allied Irish Banks, p.l.c. was in breach of the 25% limit for ECB repo funding. These breaches were due to the difficult funding environment and the Central
Bank was advised as appropriate. EBS Mortgage Finance (EBS MF) breached the 25% single counterparty large exposures limit during December 2011. The
excess was corrected in January 2012 and EBS MF is no longer in breach.   67 Financial and other information

2012


2011


2010Operating ratiosOperating expenses/operating income


311.9
%


39.6
%


(49.1
)%Operating expenses/operating income before exceptional items


122.1
%


94.4
%


70.6
%Other income/operating income


(78.1
)%


68.9
%


154.9
%Other income/operating income before exceptional items


22.3
%


24.5
%


20.1
%Rates of exchange /US$Closing


1.3194



1.2939



1.3362Average


1.2850



1.3924



1.3259 /Stg£Closing


0.8161



0.8353



0.8608Average


0.8110



0.8682



0.8578/PLNClosing


4.0740



4.4580



3.9750Average


4.1839



4.1188



3.9943  Assets


Liabilities and equityCurrency information

2012
 m


2011

m


2012
 m


2011

mEuro


99,110



106,468



102,768



107,443Other


23,406



30,183



19,748



29,208122,516



136,651



122,516



136,651








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68  Average balance sheets and interest rates The following table shows interest rates prevailing at 31 December 2012 together with average prevailing interest rates, gross yields,
spreads and margins for the years ended 31 December 2012, 2011 and 2010.  As at31 December


Average interest rates forYears ended 31 DecemberInterest rates

2012
%


2012
%


2011
%


2010
%IrelandAIB Groups prime lending rate


0.63



0.85



1.69



1.38European inter-bank offered rateOne month euro


0.11



0.33



1.18



0.81Three month euro


0.19



0.58



1.12



1.02United KingdomAIB Groups base rate


0.50



0.50



0.50



0.50London inter-bank offered rateOne month sterling


0.49



0.62



0.65



0.65Three month sterling


0.52



0.83



0.88



0.80PolandOne month zloty


4.23



4.78



4.36



3.52United StatesPrime rate


3.25



3.25



3.25



3.25Gross yields, spreads and margins(1)(2)Gross yield(3)Group






2.98



3.22



3.16Domestic






3.07



3.16



2.85Foreign






2.58



2.97



3.09Interest rate spread(4)Group






0.25



0.66



1.12Domestic






0.24



0.49



0.64Foreign






0.57



1.25



1.79Net interest margin(5)Group






0.91
%


1.03
%


1.31
%Domestic






0.78
%


0.73
%


0.69
%Foreign






1.47
%


2.17
%


2.19
%Average interest earning assets




2012
 m


2011  m


2010  mGroup


122,200



131,038



141,093Domestic


99,580



103,539



107,626Foreign


22,620



27,499



33,467 (1)The gross yields, spreads and margins presented
in this table are extracted from the average balance sheets and interest rates on the following pages and this breakdown into domestic and foreign has been compiled on the basis of location of office. The gross yields, spreads and margins are
presented on a continuing operations basis. (2)The average balance sheet is
presented on a continuing operations basis. Comparative figures have also been re-presented on this basis. (3)Gross yield represents the average interest rate earned on interest earning assets. (4)Interest rate spread represents the difference between the average interest rate
earned on interest earning assets and the average interest rate paid on interest bearing liabilities. (5)Net interest margin represents net interest income as a percentage of average interest earning assets. Net interest margin is presented on a continuing operations basis only.








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68  Average balance sheets and interest rates(continued) The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the years ended 31 December 2012,
2011 and 2010. The calculation of average balances include daily and monthly averages for reporting units. The average balances used are considered to be representative of the operations of the Group. The average balance sheet is presented on a
continuing operations basis.  Year ended31 December 2012


Year ended 31 December 2011


Year ended 31 December 2010Average
balance


Interest


Average
rate


Average
balance


Interest


Average
rate


Average
balance


Interest


Average
rateAssets

 m


 m


%


 m


m


%


 m


 m


%Trading portfolio financial assetsDomestic offices


14







2.5



28



1



2.5



54



1



1.9Foreign offices


23



1



3.7



24



1



4.4



13



1



3.8Loans and receivables to banksDomestic offices


1,349



7



0.5



2,712



33



1.2



4,453



32



0.7Foreign offices


6,344



24



0.4



5,123



36



0.7



3,550



19



0.5Loans and receivables to
customers(1)Domestic offices


65,268



2,161



3.3



68,015



2,380



3.5



80,899



2,415



3.0Foreign offices


15,735



540



3.4



20,555



697



3.4



27,535



919



3.3NAMA senior bondsDomestic offices


18,957



329



1.7



17,980



348



1.9



2,230



29



1.3Financial investments available for saleDomestic offices


13,992



560



4.0



14,804



508



3.4



19,990



590



2.9Foreign offices


518



19



3.7



1,797



84



4.7



2,369



96



4.1Average interest earning assetsDomestic offices


99,580



3,057



3.1



103,539



3,270



3.2



107,626



3,067



2.8Foreign offices


22,620



584



2.6



27,499



818



3.0



33,467



1,035



3.1Net interest on swaps






130











137











369Total average interest earning assets


122,200



3,771



3.1



131,038



4,225



3.2



141,093



4,471



3.2Non-interest earning assets


9,767











6,723











8,352Total average assets


131,967



3,771



2.9



137,761



4,225



3.1



149,445



4,471



3.0Percentage of assets applicable to foreign activities










18.5











21.2











24.8 (1)Includes loans and receivables held for sale to
NAMA as at 31 December 2010.








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68  Average balance sheets and interest rates(continued)  2012


2011


2010Liabilities & shareholders equity

Averagebalance


Interest


Average rate


Averagebalance


Interest


Average rate


Averagebalance


Interest


Average  rate m


 m


%


 m


 m


%


 m


 m


%Due to central banks and banksDomestic offices


33,060



251



0.8



42,121



593



1.4



35,402



368



1.0Foreign offices


462



1



0.2



870



7



0.8



1,722



7



0.4Due to customersDomestic offices


39,110



1,445



3.7



40,421



1,296



3.2



43,827



924



2.1Foreign offices


11,524



233



2.0



11,173



200



1.8



17,719



251



1.4Other debt issuedDomestic offices


12,027



500



4.2



15,342



597



3.9



21,533



650



3.0Foreign offices


267



12



4.5



296



14



4.8



3,700



45



1.2Subordinated liabilitiesDomestic offices


1,240



223



18.0



1,810



172



9.5



4,284



382



8.9Foreign offices














295



(4
)


(1.4)



127







Average interest earning liabilitiesDomestic offices


85,437



2,419



2.8



99,694



2,658



2.7



105,046



2,324



2.2Foreign offices


12,253



246



2.0



12,634



217



1.7



23,268



303



1.3Total average interest earning liabilities


97,690



2,665



2.7



112,328



2,875



2.6



128,314



2,627



2.0Non-interest earning liabilities


20,899











15,248











14,428Total average liabilities


118,589



2,665



2.2



127,576



2,875



2.3



142,742



2,627



1.8Shareholders equity


13,378











10,185











6,703Total average liabilities and shareholders equity


131,967



2,665



2.0



137,761



2,875



2.1



149,445



2,627



1.8Percentage of liabilities applicable to foreign operations










13.1











12.6











18.9








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|---- |  | --------------------------------- |  | 
|LOGO |  | Notes to the financial statements |  | 






68  Average balance sheets and interest rates(continued) The following table allocates changes in net interest income between volume and rate for the year ended 31 December 2012 compared with the year ended
31 December 2011 and the year ended 31 December 2011 compared with the year ended 31 December 2010. Volume and rate variances have been calculated based on the movements in average balances over the year and changes in interest rates
on average interest earning assets and average interest bearing liabilities respectively. Changes due to a combination of volume and rate are allocated ratably to volume and rate.  December 2012 over December 2011




December 2011 over December 2010Increase/(decrease) due to changes inAverage
Volume  m


Average
Rate  m


Net
Change  m




Average
Volume  m


Average
Rate  m


Net
Change  mInterest earning assetsTrading portfolio financial assetsDomestic offices


(1
)






(1)













Foreign offices
























Loans and receivables to banksDomestic offices


(17
)


(9)



(26)





(6
)


7



1Foreign offices


10



(22)



(12)





8



9



17Loans and receivables to customers(1)Domestic offices


(96
)


(123)



(219)





(291
)


256



(35)Foreign offices


(162
)


5



(157)





(240
)


18



(222)NAMA senior bondsDomestic offices


19



(38)



(19)





205



114



319Financial investments available for saleDomestic offices


(24
)


76



52





(172
)


90



(82)Foreign offices


(60
)


(5)



(65)





(21
)


9



(12)Total interest income


(331
)


(116)



(447)





(517
)


503



(14)Interest bearing liabilitiesDue to central banks and banksDomestic offices


(127
)


(215)



(342)





67



158



225Foreign offices


(4
)


(2)



(6)













Due to customersDomestic offices


(41
)


190



149





(71
)


443



372Foreign offices


6



27



33





(98
)


47



(51)Other debt issuedDomestic offices


(128
)


31



(97)





(202
)


149



(53)Foreign offices






(2)



(2)





(42
)


11



(31)Subordinated liabilitiesDomestic offices


(53
)


104



51





(221
)


11



(210)Foreign offices


4







4









(4)



(4)Total interest expense


(343
)


133



(210)





(567
)


815



248Net interest incomeDomestic offices


230



(204)



26





163



(294)



(131)Foreign offices


(218
)


(45)



(263)





(113
)


(18)



(131)Net interest income (interest earning assets and interest bearing liabilities)


12



(249)



(237)





50



(312)



(262)Net interest on swaps










(7)













(232)Net interest income










(244)













(494) (1)Includes loans and receivables held for sale to
NAMA at 31 December 2010.








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69 Non-adjusting events after the reporting period The following are the significant non-adjusting events that have taken place since 31 December 2012: Minimum Funding Standard funding plan Approval was received from the Pensions
Board in 2013 in relation to a funding plan up to January 2018 with regard to regulatory Minimum Funding Standard requirements of the AIB Group Irish Pension Scheme. Eligible Liabilities Guarantee Scheme 2009 On 26 February 2013, the Minister
for Finance announced that the Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 (ELG Scheme) will end for all new liabilities with effect from midnight on 28 March 2013. After this date, no new liabilities will be
guaranteed under the ELG Scheme. This follows the withdrawal of AIB UK (AIB GB and FTB) from the ELG Scheme in August 2012, which had a negligible effect on deposit balances. The existing deposit guarantee scheme, which guarantees deposits of up to
100,000 per qualifying depositor, is unaffected by this announcement. The cost of the ELG scheme has been significant,  388 million in 2012 and  488 million in 2011. Disposal of 24.99% investment in ALH, acquisition of 100% of Ark Life During March 2013, AIB concluded discussions with Aviva Group Ireland p.l.c. on the exercise of the put options and completed the disposal of its interest in Aviva Life
Holdings Ireland Limited (ALH) and the acquisition of 100% of Ark Life Assurance Company Limited (Ark Life or Ark). AIBs
investment in ALH at 31 December 2012 was designated as an equity investment at fair value through profit or loss in the Held for Sale category (notes 34 and 35). AIB has considered its long term strategy with regard to this newly acquired subsidiary, and has taken the necessary steps that entitles it to designate Ark as a
subsidiary held exclusively with a view to resale on acquistion. Accordingly, the investment in Ark will be considered a disposal group. Following a net
cash outlay, which was in line with the assumptions that supported the year end valuations, the investment in Ark will be initially measured at fair value less costs to sell, being a market related valuation of Arks MCEV of  447 million. The fair value of liabilities acquired amounted to  3.8 billion while the fair value of assets
acquired amounted to  4.1 billion. At each subsequent reporting date, the investment will be valued at fair value less costs to sell. Change of Auditor Following the tender process as outlined in the Report of
the Directors on page 172, the Board has decided to put forward a resolution, at the AGM to be held on 20 June 2013, that Deloitte & Touche be appointed as Auditor to the company. 70 Dividends No final dividend will be paid in respect of the year ended 31
December 2012. 71 Approval of financial statements The financial
statements were approved by the Board of Directors on 26 March 2013.








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|---- |  | ------------------------------------------------------------------------ |  | 
|LOGO |  | Allied Irish Banks, p.l.c. Parent
company financial statements and notes |  | 






Statement of financial position Statement of cash flows Statement of changes in equity Accounting policies Note  a
Administrative expenses  b
Retirements benefits  c
Financial assets and financial liabilities held for sale to NAMA  d
Disposal groups and non-current assets held for sale  e
Trading portfolio financial assets  f
Derivative financial instruments  g
Loans and receivables to banks  h
Loans and receivables to customers  i
Amounts receivable under finance leases and hire purchase contracts  j
Provisions for impairment on loans and receivables  k
NAMA senior bonds  l
Financial investments available for sale  m
Investments in Group undertakings  n
Intangible assets  o
Property, plant and equipment  p
Deferred taxation  q
Deposits by central banks and banks  r
Customer accounts  s
Debt securities in issue  t
Other liabilities  u
Provisions for liabilities and commitments  v
Subordinated liabilities and other capital instruments  w
Share capital  x
Capital reserves  y
Capital redemption reserves  z
Contributions from the Minister for Finance and NPRFC  aa
Memorandum items: Contingent liabilities and commitments and contingent assets  ab
Transfer of financial assets  ac
Fair value of financial instruments  ad
Classification and measurement of financial assets and financial liabilities  ae
Statement of cash flows  af
Financial assets and financial liabilities by contractual residual maturity  ag
Related party transactions  ah
Commitments








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| |  | ----------------------------------------------------------------------------------- |  | ----
| |  | Statement of financial position  Allied Irish Banks, p.l.c.
as at 31 December 2012 |  | LOGO






Notes


2012
 m


2011
 mAssetsCash and balances at central banks


ae



1,076



1,067Items in course of collection






95



100Disposal groups and non-current assets held for sale


d



561



1,169Trading portfolio financial assets


e



24



56Derivative financial instruments


f



2,768



3,025Loans and receivables to banks


g



31,284



36,028Loans and receivables to customers


h



37,234



42,074NAMA senior bonds


k



17,082



19,509Financial investments available for sale


l



14,930



13,336Interests in associated undertakings






3



3Investments in Group undertakings


m



2,735



2,361Intangible assets


n



168



154Property, plant and equipment


o



267



278Other assets






110



292Current taxation






6



44Deferred taxation


p



2,931



2,738Prepayments and accrued income






469



571Total assets






111,743



122,805LiabilitiesDeposits by central banks and banks(1)


q



39,389



46,150Customer accounts


r



48,751



46,774Disposal groups held for sale


d







1Derivative financial instruments


f



3,541



4,061Debt securities in issue


s



5,142



9,902Current taxation






14



Other liabilities


t



520



416Accruals and deferred income






826



744Retirement benefit liabilities


b



690



794Provisions for liabilities and commitments


u



276



436Subordinated liabilities and other capital instruments


v



1,271



1,209Total liabilities






100,420



110,487Shareholders equityShare capital


w



5,206



5,170Share premium


w



2,890



4,926Reserves






3,227



2,222Total shareholders equity






11,323



12,318Total liabilities and shareholders equity






111,743



122,805 (1)This includes  19,760 million of borrowings from central banks (2011:  27,268 million). David Hodgkinson, Chairman; David Duffy, Chief Executive Officer; Catherine Woods, Director; David OCallaghan, Company Secretary.








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|LOGO |  | Statement of cash flows  Allied Irish Banks, p.l.c. for the
year ended 31 December 2012 |  | 






Notes


2012
 m


2011  m


2010(4)
 mReconciliation of loss before taxation to net cash outflow from operating activitiesLoss for the year from continuing operations before taxation






(1,668
)


(4,516
)


(8,448)Adjustments for:Gain on redemption/remeasurement of subordinated liabilities and other capital instruments










(3,154
)


(372)Profit on disposal of businesses






(1
)






(Profit)/loss on disposal of property, plant and equipment






(2
)


1



(42)Loss on disposal of financial assets






276



286



51Dividend income






(280
)


(2,205
)


(1,161)Impairment of associated undertakings






5







52Impairment of subsidary undertakings


m



(136
)


3,813



Profit on disposal of associated undertakings














(577)Gain on designation of associate as an equity investment at fair value through profit or loss






(184
)






Provisions for impairment on loans and receivables


j



1,353



5,306



4,991Loss on transfer of financial instruments held for sale to NAMA






(67
)


403



5,599Writeback of provisions/provisions for liabilities and commitments






9



(129
)


294Provisions for impairment on financial investments available for sale






79



275



58Change in other provisions






166



35



59Depreciation, amortisation and impairment






95



101



170Interest on subordinated liabilities and other capital instruments






223



172



382Loss/(profit) on disposal of financial investments available for sale






74



42



(87)Amortisation of premiums and discounts






(125
)


(65
)


(12)Change in prepayments and accrued income






103



(18
)


250Change in accruals and deferred income






81



37



(453)1



384



754Change in deposits by central banks and banks






(6,993
)


(27,895
)


10,136Change in customer accounts(1)






1,871



(9,784
)


(24,507)Change in loans and receivables to customers(2)






4,224



15,781



3,138Change in NAMA senior bonds






2,395



886



Change in loans and receivables to banks






4,707



9,747



7,483Change in trading portfolio financial assets/liabilities






33



(22
)


81Change in derivative financial instruments






(655
)


593



189Change in items in course of collection






4



34



(7)Change in debt securities in issue






(4,765
)


(2,783
)


(11,280)Change in other assets






186



(139
)


112Change in other liabilities






(49
)


(36
)


(1,276)Effect of exchange translation and other adjustments(3)






(881
)


(272
)


(632)Net cash outflow from operating assets and liabilities






77



(13,890
)


(16,563)Net cash outflow from operating activities before taxation






78



(13,506
)


(15,809)Taxation paid






42



15



(2)Net cash outflow from operating activities






120



(13,491
)


(15,811)Investing activities(note a)






(617
)


1,601



5,648Financing activities(note b)






(160
)


11,333



3,446Change in cash and cash equivalents






(657
)


(557
)


(6,717)Opening cash and cash equivalents






3,092



3,618



10,139Effect of exchange translation adjustments






(1
)


31



196Closing cash and cash equivalents






2,434



3,092



3,618








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| |  | Statement of cash flows  Allied Irish Banks, p.l.c. (continued)
for the year ended 31 December 2012 |  | LOGO






Notes


2012
 m


2011  m


2010  m(a) Investing activitiesNet cash outflow on acquisition of business combinations










(3,779
)


Purchase of financial investments available for sale


l



(4,522
)


(2,378
)


(5,930)Proceeds from sales and maturity of financial investments available for sale


l



4,320



8,251



8,939Additions to property, plant and equipment


o



(32
)


(16
)


(21)Disposal of property, plant and equipment






2



2



81Additions to intangible assets


n



(68
)


(31
)


(23)Disposal of intangible assets














1Disposal of investment in associated undertakings














1,467Investment in Group undertakings


m



(600
)


(2,660
)(4)


(27)Dividends received from subsidiary companies






264



2,205
(5)


1,118Disposal/redemption of investment in businesses and subsidiaries






10



7



Dividends received from associated undertakings






9







43Cash flows from investing activities






(617
)


1,601



5,648(b) Financing activitiesProceeds of issue of CCNs


v







1,600



Proceeds of issue of share capital to NPRFC


w







5,000



3,698Capital contributions from the Minister for Finance and the NPRFC


z







6,054



Redemption of subordinated liabilities and other capital instruments










(1,089
)


Cost of redemption of capital instruments










(9
)


(5)Interest paid on subordinated liabilities and other capital instruments






(160
)


(223
)


(247)Cash flows from financing activities






(160
)


11,333



3,446 (1)Includes deposits placed by the NTMA  1,127 million (2011:  27 million; 2010:Nil). (2)Includes financial assets held for sale to NAMA and loans and receivables to
customers within disposal groups and non-current assets held for sale. (3)Included within the effect of exchange translation and other adjustments are
amounts in respect of pension contributions of  187 million (2011:  73 million; 2010:  293 million). In addition, included within this caption is a charge of  146 million in respect of past service costs relating to the early retirement scheme; a
credit of  29 million in respect of a curtailment gain for voluntary severance employees; and a credit of  160 million in respect of defined
benefits, all of which are non-cash movements. (4)Additions to investment in
Group undertakings of  600 million (2011:  3,637 million) (note m) include non-cash transactions of Nil
(2011:  977 million in relation to investments in EBS Limited and Anglo Irish Bank Corporation (International) plc. (5)Dividends include  2,180 million from AIB European Investments Limited, which was the holding company of BZWBK. The proceeds of sale of BZWBK were remitted by AIB European Investments Limited to Allied Irish Banks,
p.l.c. by way of dividend.








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Statement of changes in equity  Allied Irish Banks, p.l.c. for the year ended 31 December 2012  Share
capital




Share
premium




Other
equity interests




Capital
reserves




Capital
redemption reserves




Revaluation
reserves




Available
for sale securities
reserves m




 m




 m




 m




 m




 m




 mAt 1 January 2012


5,170





4,926











2,011





3,958





15





(948)Loss for the year






































Other comprehensive income
































(2
)




1,217Total comprehensive income for the year
































(2
)




1,217Capital contributions




















(247
)
















Reduction of capital (notes w and y)








(2,000
)
















(3,958
)










Ordinary shares issued in lieu of dividend (note w)


36





(36
)




























Other movements






































At 31 December 2012


5,206





2,890











1,764











13





269  Cash flow
hedging reserves




Revenue
reserves




Foreign
currency translation
reserves




Treasury
shares




Share
based payments
reserves




Total m




 m




 m




 m




 m




 mAt 1 January 2012


122





(2,355
)




(68
)




(549
)




36





12,318Loss for the year








(1,418
)






















(1,418)Other comprehensive income


(157
)




(633
)




(2
)
















423Total comprehensive income for the year


(157
)




(2,051
)




(2
)
















(995)Capital contributions








247























Reduction of capital (notes w and y)








5,958























Ordinary shares issued in lieu of dividend (note w)
































Other movements
































At 31 December 2012


(35
)




1,799





(70
)




(549
)




36





11,323  Share
capital




Share
premium




Other
equity interests




Capital
reserves




Capital
redemption reserves




Revaluation
reserves




Available
for sale securities
reserves m




 m




 m




 m




 m




 m




 mAt 1 January 2011


3,965





5,089





239





156











11





(997)Loss for the year






































Other comprehensive income






































49Total comprehensive income for the year






































49Capital contributions (notes y and z)




















2,687

















Ordinary shares issued in lieu of dividend (note w)


163





(163
)




























Issue of ordinary shares (note w)


5,000



































Cancellation of deferred shares (notes w and y)


(3,958
)






















3,958











Redemption of capital instruments














(239
)






















Share based payments






































Other movements




















(832
)(1)










4





At 31 December 2011


5,170





4,926











2,011





3,958





15





(948)  Cash flow
hedging reserves




Revenue
reserves




Foreign
currency translation
reserves




Treasury
shares




Share based
payments reserves




Total m




 m




 m




 m




 m




 mAt 1 January 2011


376





(5,353
)




(67
)




(549
)




42





2,912Loss for the year








(3,674
)






















(3,674)Other comprehensive income


(254
)




(436
)




(1
)
















(642)Total comprehensive income for the year


(254
)




(4,110
)




(1
)
















(4,316)Capital contributions (notes y and z)








6,054























8,741Ordinary shares issued in lieu of dividend (note w)
































Issue of ordinary shares (note w)
































5,000Cancellation of deferred shares (notes w and y)
































Redemption of capital instruments








216























(23)Share based payments








6

















(6
)




Other movements








832























4At 31 December 2011


122





(2,355
)




(68
)




(549
)




36





12,318 (1)See Parent company note x.








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| |  | Notes to the financial statements  Allied Irish Banks, p.l.c. |  | LOGO






Accounting Policies The
accounting policies adopted by Allied Irish Banks, p.l.c. are the same as those of the Group as set out on pages 193 to 217 where applicable. a   Administrative expenses  2012
 m




2011
 m




2010  mPersonnel expenses:Wages & salaries




630





610





565Termination benefits(1)




230











Retirement benefits(2)




(146)





35





74Social security costs




68





64





58Other personnel expenses




7





(5)





(11
)789





704





686General and administrative expenses(3)




424





471





3391,213





1,175





1,025 (1)On 21 May 2012, AIB announced the specific
terms of a voluntary severance programme which includes both an early retirement scheme and a voluntary severance scheme. At 31 December 2012, a provision of
 229 million has been made in respect of termination benefits arising from the voluntary severance programme. This amount comprises  146 million in respect of past service costs relating to the early retirement scheme and  112 million relating to the voluntary severance scheme (notes b
and u) and a credit of  29 million in respect of a pension curtailment gain. In addition, a provision of  1 million has been made in respect of
termination benefits in Allied Irish America. (2)The amount comprises a credit
of  160 million relating to defined benefit expense (2011: charge of  22 million; 2010: charge of  61 million), a defined contribution expense of  7 million (2011:  6 million; 2010:
 6 million) and a long term disability payments expense of  7 million (2011:  7 million; 2010:  7 million). (3)Includes external costs
relating to the transfer of financial instruments to NAMA that amounted to  3 million (2011:  28 million;
2010:  21 million).








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b      Retirement benefits AIB p.l.c operates a number of pension and retirement benefit schemes for employees, the majority of which are funded. These include both defined benefit and defined
contribution schemes. The hybrid scheme includes elements of a defined benefit scheme and a defined contribution scheme. Defined benefit schemes Of the defined benefit schemes operated by AIB p.l.c., the most significant is the AIB Group Irish Pension Scheme (the Irish scheme), further details of which
are provided in the Groups retirement benefits note (note 12). Financial and mortality assumptions The financial and mortality assumptions adopted in the preparation of these financial statements are the same as those adopted in the preparation of the Groups
financial statements. See note 12 for further details. Sensitivity analysis for principal assumptions used to measure scheme liabilities There are inherent uncertainties surrounding the financial assumptions adopted in calculating the actuarial valuation of the AIB p.l.c. pension schemes. A sensitivity
analysis for the key assumptions for the Irish scheme is set out in the Groups retirement benefits note (note 12). Fair value of scheme assets The following table sets out on a combined basis for all schemes, the fair value of the assets held by the schemes together with the long-term rate of return
expected for each class of asset for AIB p.l.c.. The expected rates of return on individual asset classes were estimated using current and projected economic and market factors at the measurement date in consultation with the Groups actuaries. Under IAS 19 Employee Benefits (revised), which AIB p.l.c. will adopt from 1 January 2013, the expected return on assets is replaced with an interest
cost on assets which is set equal to the discount rate at the measurement date.  2012


2011Long termrate of returnexpected


Value


Scheme  assets


Long termrate of returnexpected


Value


Scheme assets%


 m


%


%


 m


%Equities


5.9



1,608



46



6.9



1,758



67Bonds


2.8



884



25



3.1



469



18Mortgage portfolio


5.0



570



16











Property


5.5



186



5



5.4



186



7Cash/other


4.3



264



8



4.5



215



8Total market value of assets


4.8



3,512



100



5.9



2,628



100Actuarial value of liabilities of funded schemes






(4,191)











(3,389)Deficit in the funded schemes






(679)(1)











(761)(1)Unfunded deferred benefit obligation






(11)











(33)Net pension deficit






(690)











(794) (1)Of which
 673 million deficit relates to the Irish scheme and  6 million deficit relates to other schemes
(2011:  754 million deficit relates to the Irish scheme;  7 million deficit relates to other schemes). At 31 December 2012, the pension scheme assets included AIB shares amounting to Nil (2011: Nil). Included in the actuarial value of the liabilities is an amount in
respect of commitments to pay annual pensions amounting to  104,234 (2011:  109,813) in aggregate to a number
of former directors or the spouses of deceased former directors.  Movement in defined benefit obligation during the year

2012
 m


2011 mDefined benefit obligation at beginning of year


3,422



3,046Current service cost


62



55Past service cost  Termination benefits


146



 Other


(218)



3Interest cost


169



167Contributions by employees


17



16Actuarial losses


851



252Benefits paid


(209
)


(93
)Curtailment  Termination benefits


(29
)


 Other


(8
)


(26
)Translation adjustment on non-euro schemes


(1
)


2Defined benefit obligation at end of year


4,202



3,422








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b   Retirement benefits(continued) Movement in the scheme assets during the year

2012
 m


2011  mFair value of scheme assets at beginning of year


2,628



2,704Expected return(1)


165



174Actuarial gains/(losses)


129



(248
)Contributions by employer


781
(2)


73Contributions by employees


17



16Benefits paid


(208
)


(93
)Translation adjustment on non-euro schemes






2Fair value of scheme assets at end of year


3,512



2,628 (1)Includes payment of pension levy. (2)Includes the transfer to the Irish scheme of interests in an SPV owning loans and
receivables previously transferred at fair value from the Group.  Amount recognised in the statement of comprehensive income

2012
 m


2011  m


2010  mActual return less expected return on pension scheme assets


129



(248
)


73Experience gains and losses on scheme liabilities


(10
)


24



85Changes in demographic and financial assumptions


(841
)(1)


(276
)


(173
)Actuarial loss recognised


(722
)


(500
)


(15
)Deferred tax


89



64



3Recognised in the statement of comprehensive income


(633
)


(436
)


(12
) (1)Principally due to reduction in discount rate and
updating of mortality assumptions in 2012.  History of experience gains and losses

2012
 m


2011  m


2010  m


2009  m


2008  mDifference between expected and actual return on scheme assets:Amount


129



(248
)


73



114



(1,208
)Percentage of scheme assets


4
%


9
%


3
%


5
%


62
%Experience gains and losses on scheme liabilities:Amount


(10
)


24



85



64



(54
)Percentage of scheme liabilities


0
%


1
%


3
%


2
%


2
%Total gross amount recognised in SOCI(1):Amount


(722
)


(500
)


(15
)


293



(812
)Percentage of scheme liabilities


17
%


15
%


1
%


10
%


27
%(1)Statement of comprehensive income.Defined benefit pension schemes

2012
 m


2011  m


2010  m


2009  m


2008  mFunded defined benefit obligation


4,191



3,389



2,990



2,777



2,928Scheme assets


3,512



2,628



2,704



2,261



1,941Deficit within funded schemes


679



761



286



516



987Unfunded defined benefit obligation


11



33



56



49



48Deficit within schemes


690



794



342



565



1,035 Defined contribution schemes AIB p.l.c.
operates a defined contribution (DC) scheme, further details of which are provided in the Groups retirement benefits note (note 12). The total cost in respect of the DC scheme for 2012 was  7 million (2011:  6 million; 2010:  6 million). The cost in respect of defined contributions is included in
administrative expenses (note 10). Long-term disability payments AIB
p.l.c. provides an additional benefit to employees who suffer prolonged periods of sickness. It provides for the partial replacement of income in event of illness or injury resulting in the employees long term absence from work. In 2012, AIB
p.l.c. contributed  7 million (2011:  7 million; 2010:  7
million) towards insuring this benefit. This amount is included in administrative expenses (note 10).








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c  Financial assets and financial liabilities held for sale to NAMA The following table provides a movement analysis of loans and receivables held for sale to NAMA:  Grossloans andreceivables


Impairmentprovisions


Carryingvalue m


 m


 mAt 1 January 2011


712



(137
)


575Exchange translation adjustments


(1
)


1



Transferred to NAMA during 2011


(573
)


309



(264
)Reclassification in/out andother movements(1)


(138
)


(139
)


(277
)Impairment charge during 2011






(34
)


(34
)At 31 December 2011










 (1)Includes changes in eligible loans and
receivables transferring during 2011, along with movements in the number of loans and receivables within the eligible pool. There were no loans classified as held
for sale or transferring to NAMA in 2012. d  Disposal groups and non-current assets held for sale At 31 December 2012, disposal groups and non-current assets held for sale comprise non-current assets and non-current liabilities held for sale. These mainly include
loans and receivables, but also included within this caption is AIBs investment in Aviva Life Holdings Ireland Limited (ALH). Disposal groups and
non-current assets/liabilities are shown as single line items in the statement of financial position with no re-presentation of comparatives. An analysis of the components of these single line items is set out below:  2012






2011Assets m




Liabilities m






Assets m




Liabilities mLoans and receivables(1):Customers




353













1,122





Banks


















7





353













1,129





Associated undertakings(2)(3)




12













12





Other:Repossessed assets


















3





Equity investment at fair value throughprofit or loss(3)




196



















AIB Investment Managers(4)


















23





Other











(5)






2





1
(5)196













28





1Total disposal groups and non-current assets held for sale




561













1,169





1 (1)Loans and receivables held for sale are net of
provisions of  122 million (31 December 2011:  9 million) (note j). (2)Associated undertakings include LaGuardia Hotel  12 million at 31 December 2012 and ALH  12 million at 31 December 2011. (3)AIBs investment in ALH is now held as an equity investment and has been
designated as at fair value through profit or loss (note 35 to the consolidated financial statements). (4)AIB Investment Managers was disposed of during 2012 resulting in a gain of  2 million. (5)Liabilities of Nil (31 December 2011:  1 million) which relates to deposits from banks. Further details of loans and receivables held for sale are set out
in the Risk management section of this report.








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e  Trading portfolio financial assets



2012
 m




2011  mDebt securities:Government securities










24Bank eurobonds










6Other debt securities




22





2422





54Equity securities




2





224





562012
 m




2011  mOf which listed:Debt securities




22





54Equity securities




1





1Of which unlisted:Equity securities




1





124





56








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f  Derivative financial instruments Details of derivative transactions entered into and their purpose are described in note 27 to the consolidated financial statements. The following table presents the notional principal amount together with the positive fair value of interest rate, exchange rate, equity and credit derivative contracts
for 2012 and 2011.  2012
 m


2011  mInterest rate contracts(1)Notional principal amount






132,053



149,886Positive fair value






2,576



2,888Exchange rate contracts(1)Notional principal amount






7,539



7,545Positive fair value






71



45Equity contracts(1)Notional principal amount






3,833



3,962Positive fair value






121



92Credit derivatives(1)Notional principal amount






114



216Positive fair value










Total notional principal amount






143,539



161,609Positive fair value






2,768



3,025 (1)Interest rate, exchange rate and credit
derivative contracts are entered into for both hedging and trading purposes. Equity contracts are entered into for trading purposes only. The following table
analyses the notional principal amount and positive fair value of interest rate, exchange rate, equity and credit derivative contracts by residual maturity:  Residual maturity< 1 year
 m


1 < 5 years
 m


5 years + m


Total
 m2012Notional principal amount


71,897



36,529



35,113



143,539Positive fair value


463



1,270



1,035



2,768Residual maturity< 1 year  m


1 < 5 years
 m


5 years + m


Total  m2011Notional principal amount


77,779



41,766



42,064



161,609Positive fair value


275



1,167



1,583



3,025Allied Irish Banks, p.l.c. has the following concentration of
exposures in respect of notional principal amount and positive fair value of interest rate, exchange rate, equity and credit derivative contracts. The concentrations are based primarily on the location of the office recording the
transaction.Notional principal amount


Positive fair value2012
 m


2011
 m


2012
 m


2011  mRepublic of Ireland


140,364



156,983



2,356



2,553United Kingdom


2,571



3,321



377



413United States of America


604



1,305



35



59Rest of World














143,539



161,609



2,768



3,025








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f  Derivative financial instruments(continued) The following table shows the notional principal amount and the fair value of derivative financial instruments analysed by product and purpose as at 31 December 2012
and 31 December 2011.  2012














2011Notional




Fair value

Notional




Fair valueprincipal




Assets




Liabilities




principal




Assets




Liabilitiesamount














amount m




 m




 m




 m




 m




 mDerivatives held for tradingInterest rate derivatives - over the counter (OTC)Interest rate swaps


24,987





1,383





(1,623)





38,783





1,763





(1,944)Cross-currency interest rate swaps


1,826





80





(68)





2,193





70





(115)Forward rate agreements




















1,122





1





(1)Interest rate options


1,015





9





(9)





1,765





14





(11)Total OTC interest rate contracts


27,828





1,472





(1,700)





43,863





1,848





(2,071)Interest rate derivatives - exchange tradedInterest rate futures


124

















4,605











Interest rate contracts total


27,952





1,472





(1,700)





48,468





1,848





(2,071)Foreign exchange derivatives (OTC)Foreign exchange contracts


7,320





69





(19)





7,279





41





(95)Currency options bought and sold


219





2





(2)





266





4





(4)Foreign exchange derivatives total


7,539





71





(21)





7,545





45





(99)Equity derivatives (OTC)Equity index options


3,833





121





(123)





3,962





92





(95)Equity index contracts total


3,833





121





(123)





3,962





92





(95)Credit derivatives (OTC)Credit derivatives


69











(20)





171











(109)Credit derivatives contracts total


69











(20)





171











(109)Total trading contracts


39,393





1,664





(1,864)





60,146





1,985





(2,374)Derivatives designated as fair value hedges(OTC)Interest rate swaps


34,110





352





(732)





55,300





254





(656)Cross currency interest rate swaps
































Derivatives designated as cash flow hedges(OTC)Interest rate swaps


67,621





729





(850)





40,083





773





(751)Cross currency interest rate swaps


2,370





23





(94)





6,035





13





(279)Currency swaps
































Credit default swaps


45











(1)





45











(1)Total hedging contracts


104,146





1,104





(1,677)





101,463





1,040





(1,687)Total derivative financial instruments


143,539





2,768
(1)




(3,541)(2
)




161,609





3,025
(1)




(4,061)
(2) (1)Includes exposure to subsidiary undertakings of  293 million (2011:  356 million). (2)Includes amounts due to subsidiary undertakings of  485 million (2011:  448 million).








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f  Derivative financial instruments(continued) Cash flow hedges The table below sets out the hedged cash flows which are
expected to occur in the following periods: 2012Within 1 year


Between 1and 2 years


Between 2and 5 years


More than5 years




Total m


 m


 m


 m




 mForecast receivable cash flows


82



25



71



36





214Forecast payable cash flows


18



16



78



41





1532011Within 1 year


Between 1


Between 2


More than




Totaland 2 years


and 5 years


5 years m


 m


 m


 m




 mForecast receivable cash flows


218



59



133



60





470Forecast payable cash flows


116



58



180



115





469The table below set out the hedged cash flows, including amortisation
of terminated cashflow hedges, which are expected to impact the income statement in the following periods:2012Within 1 year


Between 1


Between 2


More than




Totaland 2 years


and 5 years


5 years m


 m


 m


 m




 mForecast receivable cash flows


82



25



71



36





214Forecast payable cash flows


48



45



126



57





2762011Within 1 year


Between 1


Between 2


More than




Totaland 2 years


and 5 years


5 years m


 m


 m


 m




 mForecast receivable cash flows


248



86



192



88





614Forecast payable cash flows


116



58



180



116





470g  Loans and receivables to banks





2012
 m




2011  mFunds placed with central banks














89





405Funds placed with other banks














31,199





35,627Provision for impairment














(4
)




(4
)31,284





36,028Of which:Due from third parties














1,575





2,587Due from subsidiary undertakings(1)







29,709





33,44131,284





36,028Amounts include:Reverse repurchase agreements














61





592012




2011Loans and receivables to banks by geographical area(2)





 m




 mRepublic of Ireland














29,530





31,894United States of America














4





7United Kingdom














1,750





4,125Poland




















231,284





36,028 (1)Amounts due from subsidiary undertakings may
include repurchase agreements. (2)The classification of loans and receivables
to banks by geographical area is based primarily on the location of the office recording the transaction. Loans and receivables to banks include cash collateral of  1,186 million (2011:  1,838 million) placed with derivative counterparties in relation to net derivative
positions (note f).








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h  Loans and receivables to customers

2012
 m




2011  mLoans and receivables to customers


47,559





50,964Amounts receivable under finance leases andhire purchase contracts (note i)


456





521Unquoted debt securities


224





786Provisions for impairment (note j)


(11,005)





(10,197)37,234





42,074Of which:Due from third parties


25,343





30,206Due from subsidiary undertakings(1)


11,891





11,86837,234





42,074Of which repayable on demand or at short notice


24,195





19,410Amounts include:Due from associated undertakings








1(1)Amounts due from subsidiary undertakings may include repurchase agreements.i   Amounts receivable under finance leases and
hire purchase contracts The following balances principally comprise of leasing arrangements involving vehicles, plant, machinery and equipment.2012
 m




2011  mGross receivablesNot later than 1 year


131





163Later than one year and not later than 5 years


362





392Later than 5 years


11





20504





575Unearned future finance income


(50)





(56)Deferred costs incurred on origination


2





2Total


456





521Present value of minimum payments analysed by residual maturityNot later than 1 year


130





160Later than one year and not later than 5 years


317





345Later than 5 years


9





16Present value of minimum payments


456





521Provision for uncollectible minimum payments receivable(1)


104





104Net investment in new business


155





158 (1)Included in the provisions for impairment on
loans and receivables to customers (note j).








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j   Provisions for impairment on loans and receivables The following table shows provisions for impairment on loans and receivables (both to banks and customers) and also includes loans and receivables within disposal groups
and non-current assets held for sale. The classification of loans and receivables into corporate/commercial, residential mortgages, and other relates to classification used in the Groups ratings tools and are explained in the Risk
management section of this report.  2012Corporate/


Residential




Other




TotalCommercial
 m


mortgages
 m




 m




 mAt 1 January 2012


9,367



174





669





10,210Exchange translation adjustments


(4
)














(4
)Transfers(1)


29



(17
)










12Charge against income statement


1,179



(6
)




180





1,353Amounts written off


(341
)


(4
)




(90
)




(435
)Disposals


(6
)














(6
)Recoveries of amounts written off in previous years


1















1At 31 December 2012


10,225



147





759





11,131Total provisions are split as follows:Specific


9,672



125





695





10,492IBNR


553



22





64





63910,225



147





759





11,131Amounts include:Loans and receivables to banks (note g)


















4Loans and receivables to customers (note h)


















11,005Loans and receivables of disposal groups and non-current assets held for sale (note d)


















12211,131(1)Includes transfers from provisions for liabilities and commitments.2011Corporate/


Residential




Other




TotalCommercial m


mortgages m




 m




 mAt 1 January 2011


5,267



146





527





5,940Exchange translation adjustments


14



1











15Charge against income statement


4,929



143





234





5,306Amounts written off


(536
)


(10
)




(92
)




(638
)Recoveries of amounts written off in previous years


2















2Provisions on loans and receivables transferred to NAMA


(309
)














(309
)Provisions on mortgage business transferred to subsidiary






(106
)










(106
)At 31 December 2011


9,367



174





669





10,210Total provisions are split as follows:Specific


8,144



109





516





8,769IBNR


1,223



65





153





1,4419,367



174





669





10,210Amounts include:Loans and receivables to banks (note g)


















4Loans and receivables to customers (note h)


















10,197Loans and receivables of disposal groups and non-current assets held for sale (note d)


















910,210








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k   NAMA senior bonds During 2011 and 2010, AIB received NAMA senior bonds and NAMA subordinated bonds as consideration for loans and receivables transferred to NAMA. The following table provides a movement analysis of the NAMA senior bonds: 2012
 m


2011  mAt 1 January


19,509



7,869Purchased from Anglo Irish Bank Corporation






11,854Additions






769Net returns


(136
)


(165
)Amortisation of discount


104



68Repayments


(2,395
)


(886
)At 31 December


17,082



19,509 l    Financial investments available for sale The following table gives at 31 December 2012 and 31 December 2011, the carrying value (fair value) of financial investments available for sale by major
classifications together with the unrealised gains and losses:  2012Fair value


Unrealised


Unrealised


Net unrealised


Tax effect


Net m


gross gains
 m


gross losses
 m


gains/(losses)
 m


 m


after tax
 mDebt securitiesIrish Government securities


7,172



496



(1
)


495



(62
)


433Euro government securities


1,754



153



(4
)


149



(18
)


131Non Euro government securities


666



95







95



(12
)


83Supranational banks and government agencies


1,682



55







55



(7
)


48Collateralised mortgage obligations


22







(6
)


(6
)


1



(5
)Other asset backed securities


920



1



(140
)


(139
)


17



(122
)Euro bank securities


2,195



50



(11
)


39



(5
)


34Non Euro bank securities


126



3







3







3Euro corporate securities


87



6



(3
)


3



(1
)


2Non Euro corporate securities


193



17







17



(4
)


13Other investments


12



















Total debt securities


14,829



876



(165
)


711



(91
)


620Equity securitiesEquity securities - NAMA subordinated bonds


45



















Equity securities - other


56



4



(8
)


(4
)


1



(3
)Total financial investment available for sale


14,930



880



(173
)


707



(90
)


617








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l   Financial investments available for sale(continued)  2011Fair value 
 m


Unrealised gross gains
 m


Unrealisedgross losses
 m


Net unrealisedgains/(losses)
 m


Tax effect 
 m


Net after tax
 mDebt securitiesIrish Government securities


4,861







(330
)


(330
)


41



(289)Euro government securities


1,830



101



(62
)


39



(5
)


34Non Euro government securities


696



95



(3
)


92



(12
)


80Supranational banks and government agencies


1,147



10



(1
)


9



(1
)


8Collateralised mortgage obligations


509







(12
)


(12
)


2



(10)Other asset backed securities


1,210







(353
)


(353
)


44



(309)Euro bank securities


2,054



15



(92
)


(77
)


10



(67)Non Euro bank securities


424



4



(2
)


2







2Euro corporate securities


110



4



(6
)


(2
)






(2)Non Euro corporate securities


279



15



(5
)


10



(2
)


8Other investments


12



















Total debt securities


13,132



244



(866
)


(622
)


77



(545)Equity securitiesEquity securities - NAMA subordinated bonds


127



















Equity securities - other


77



5



(21
)


(16
)


3



(13)Total financial investments available for sale


13,336



249



(887
)


(638
)


80



(558) Available for sale financial investments with unrealised losses have been assessed for impairment based on the credit risk profile of the
counterparties involved. Impairment losses on debt securities of Nil (2011:  164 million) and  79 million
(2011:  111 million) on equity securities have been recognised. Analysis of movements in financial investments
available for sale  2012


2011Debtsecurities
 m


Equitysecurities
 m


Total 
 m


Debtsecurities
 m


Equitysecurities
 m


Total 
 mAt 1 January


13,132



204



13,336



19,082



237



19,319Reclassification to disposal groups and non-current assets held for sale






(18
)


(18)











Exchange translation adjustments














(13
)


(1
)


(14)Purchases


4,516



6



4,522



2,321



57



2,378Additions(1)


















18



18NAMA subordinated bonds - additions


















14



14Return of NAMA subordinated bonds






(3
)


(3)







(3
)


(3)Sales


(2,249
)


(24
)


(2,273)



(3,903
)


(34
)


(3,937)Maturities


(2,047
)






(2,047)



(4,314
)






(4,314)Provisions for impairment






(79
)


(79)



(164
)


(111
)


(275)Amortisation of discounts net of premiums


21







21



(3
)






(3)Movement in unrealised gains


1,456



15



1,471



126



27



153At 31 December


14,829



101



14,930



13,132



204



13,336Of which:Listed


14,817



53



14,870



13,120



48



13,168Unlisted


12



48



60



12



156



16814,829



101



14,930



13,132



204



13,336 (1)Additions relate to transfers from loans and
receivables arising from debt/equity restructures and other additions.








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l    Financial investments available for sale(continued)  Debt securities analysed by remaining contractual maturity

2012
 m


2011 mDue within one year


798



2,007After one year, but within five years


7,912



5,633After five years, but within ten years


4,715



3,349After ten years


1,404



2,14314,829



13,132m    Investments in Group undertakings

2012
 m


2011  mEquityAt 1 January


1,691



1,897Additions(1)


600



3,637Liquidations


(6
)


(7
)Reclassification to disposal groups and non-current assets held for sale






(35
)Reversal of impairment/(impairment)


150



(3,801
)(2)At 31 December


2,435



1,691Subordinated debtAt 1 January


670



660Redeemed


(370
)


Exchange translation adjustments






10At 31 December


300



670Total


2,735



2,361Of which:Credit institutions


2.348



1,598Other


387



763Total  all unquoted


2,735



2,361 (1)In 2012, additions include  400 million investment in EBS Limited and  200 million investment in AIB Mortgage Bank. In 2011,
additions relate to investments (cash) in subsidiaries of  2,660 million, non-cash investments of  742 million in EBS and  235 million in Anglo IOM. (2)An
impairment charge of  12 million was made for AIB Investment Managers Limited in 2011 which was classified as held for sale and not included here
(note d). The investments in Group undertakings are included in the financial statements on an historical cost basis. Letters of financial support Allied Irish Banks, p.l.c. has provided letters
of financial support to the Board of Directors of the following subsidiaries: AIB Mortgage Bank; EBS Limited; AIB Group (UK) plc; AIB Holdings (NI) Limited and AIB UK Loan Management Limited. Impairment losses reversed/recognised in Group undertakings At both
31 December 2012 and 31 December 2011, the carrying value of investments in subsidiary undertakings of the parent company, Allied Irish Banks p.l.c., was reviewed for impairment in accordance with IAS 36 Impairment of assets. These
impairment reviews were carried out for the purpose of the parents separate financial statements where the accounting policy is to carry investments in subsidiaries at cost less provisions for impairment. During 2012 and 2011, there was a requirement for the parent company to inject additional capital into certain subsidiaries arising from further losses which had been
incurred. This necessitated an impairment review in accordance with the methodology set out below as there were indications that impairment losses may have occurred. In respect of each of the subsidiaries set out below, an impairment reversal/(impairment loss) was calculated by comparing its carrying value to the recoverable amount
based on value-in-use calculations. Each subsidiary was determined to be a cash generating unit. In determining value-in-use, the expected pre-tax cash flows are
discounted at an appropriate risk adjusted interest rate, both of which require the exercise of judgement. The discounted cash flows model calculates the present value of estimated future earnings attributable to Allied Irish Banks, p.l.c. as the
shareholder. The estimation of pre-tax cash flows is sensitive to the periods for which forecasts are available and to assumptions as to long term growth rates.








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m  Investments in Group undertakings(continued) Impairment losses recognised in Group undertakings The key assumptions used for
determining value-in-use for each subsidiary are as follows: AIB Mortgage Bank During 2012, AIB invested a further  200 million into AIB Mortgage
Bank. Arising from this capital injection, AIB reviewed its investment for impairment. The recoverable amount of the investment was determined using cash flow projections based on financial plans approved by management and covering a three year
period up to 31 December 2015 with a terminal growth rate of 2% applied into perpetuity. The forecast cash flows were discounted at a rate of 11%. Based on these assumptions, the carrying value of the investment is in line with the forecast
cash flows. Therefore, no impairment loss has been recognised (2011: impairment loss of  994 million). The results of
this valuation are sensitive to changes in the growth and discount rates. Increasing the discount rate to 12% and reducing the growth rate into perpetuity from 2015 to 1% would result in an impairment loss of
 161 million. If the discount rate was reduced to 10% and the growth rate increased to 3% from 2015, the impairment loss would reverse by  294 million. AIB Holdings (N.I.) Limited The net asset value of AIB Holdings (N.I.) Limited is negative following the impairment in 2011 of its investment in AIB Group UK p.l.c.. Accordingly, the investment by
Allied Irish Banks, p.l.c. in AIB Holdings (N.I) Limited was written down to Nil in 2011 arising from the negative asset value in this subsidiary. There was no change to the valuation in 2012 arising from the impairment review. AIB UK Loan Management Limited The carrying value of the investment in
AIB UK Loan Management Limited was written down to Nil in 2011 as it is expected that the business will be wound up in the next twelve to twenty four months, with no residual value. This subsidiary received a capital injection of Stg£
580 million in December 2011 which is available to cover forecasted losses in winding up the business. EBS Limited (EBS) 100% of the share capital of EBS was acquired for a consideration of  1 on
1 July 2011. The transaction was accounted for under the carrying value basis resulting in a capital contribution of  742 million (see Parent company note x). This Day 1 capital
contribution was recorded as an investment in the subsidiary in the books of Allied Irish Banks p.l.c.. During 2012, AIB invested  400 million in this subsidiary. Impairment reviews were carried out both at 31 December 2012 and 31 December 2011. At 31 December 2012, the
recoverable amount of the investment was determined using cash flow projections based on financial plans approved by management and covering a three year period up to 31 December 2015 with a terminal growth rate of 2% applied into perpetuity.
The forecast cash flows have been discounted at a rate of 11%. Based on these assumptions, AIB reversed an impairment loss amounting to  150 million in EBS Limited, which had been recognised in 2011.
This impairment reversal arose from an appreciable increase in the carrying value of the subsidiarys available for sale debt securities portfolio due to changed market conditions. At 31 December 2011, AIB recognised an impairment loss of  1,042 million using the same methodology as in 2012. The results of this valuation are sensitive to increases in the
growth and decreases in the discount rate. If the discount rate was reduced to 10% and the growth rate increased to 3% from 2015, the impairment loss would reduce by a further
 164 million. Principal subsidiary undertakings incorporated in the
Republic of Ireland  Nature of businessAIB Mortgage Bank*

Issue of Mortgage Covered SecuritiesEBS Limited*

Mortgages and savings *Group interest is held directly by Allied Irish Banks, p.l.c. The above subsidiary undertakings are incorporated in the Republic of Ireland and are wholly-owned unless otherwise stated. The issued share capital of each undertaking is denominated in ordinary shares. All
regulated banking entities are subject to regulations which require them to maintain capital ratios at agreed levels and so govern the availability of funds available for distribution. AIB Mortgage Bank AIB Mortgage Bank is a wholly owned subsidiary of
Allied Irish Banks, p.l.c. regulated by the Central Bank of Ireland. Its principal purpose is to issue mortgage covered securities for the purpose of financing loans secured on residential property in accordance with the Asset Covered Securities
Acts, 2001 and 2007. On 13 February 2006, Allied Irish Banks, p.l.c. transferred to AIB Mortgage Bank its Irish branch originated residential mortgage
business, amounting to  13.6 billion in mortgage loans. In March 2006,
AIB Mortgage Bank launched a  15 billion Mortgage Covered Securities Programme. The Programme was subsequently increased to
 20 billion in 2009.








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m  Investments in Group undertakings(continued) Principal subsidiary undertakings incorporated in the Republic of Ireland On
25 February 2011, Allied Irish Banks, p.l.c. transferred substantially all of its mortgage intermediary originated Irish residential loans, related security and related business of approximately  4.2 billion to AIB Mortgage Bank. The transfer was effected pursuant to the statutory transfer mechanism provided for in the Asset Covered Securities Acts. Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for the AIB Mortgage Bank, originates residential
mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland, services the mortgage loans and provides treasury services in connection with financing, as well as a range of other support services. As at 31 December 2012, the total amount of principal outstanding in respect of mortgage covered securities issued was  10.3 billion (2011:  12.4 billion) of which  3.3 billion was held by debt investors (2011: 2.8 billion),  1 billion by Allied Irish Banks, p.l.c. (2011:  3.2 billion) and  6 billion was self issued to AIB Mortgage Bank (2011:
 6.4 billion). The bonds issued to Allied Irish Banks, p.l.c. and to AIB Mortgage Bank were held by the Central Bank of Ireland under sale and repurchase agreements at 31 December 2012 and
31 December 2011. At the same date, the total amount of principal outstanding in the covered assets pool including mortgage loans and cash was  17.3 billion (2011:
 19.1 billion). EBS Limited (EBS) EBS, which is regulated by the Central Bank of Ireland, became a wholly owned subsidiary of Allied Irish Banks, p.l.c. on 1 July 2011. Prior to becoming part of AIB
Group, EBS had traded as a building society for over 75 years. In May 2010, EBS was recapitalised by the Minister for Finance (the Minister) in an amount of
 875 million, and, in March 2011, the Minister announced that EBS Building Society was to be merged with AIB Group to form one of the two pillar
banks in Ireland. Accordingly, on 1 July 2011, EBS Building Society underwent a demutualisation pursuant to an acquisition conversion scheme under the Building Societies Act 1989 (as amended), the effect of which was that the building
society became a limited company and obtained a banking licence. The special investment shares that had been invested in EBS Building Society by the Irish Government converted into  625 million of
ordinary shares held by the Minister, who transferred the entire issued share capital ( 625 million ordinary shares) in EBS to AIB on 1 July 2011. Under and in accordance with the Building
Societies Act 1989 (as amended), on the conversion of EBS Building Society to EBS Limited, the business, property, rights and liabilities of EBS Building Society vested in EBS Limited. AIB operates EBS as a standalone, separately branded subsidiary
of AIB with its own branch network. EBS will continue to operate as a mortgage and savings business. EBS Group had consolidated total assets of  16 billion as at 31 December 2012, EBS has a countrywide network of 82 outlets, comprising 14 branches, 42 tied branch agencies and 26 tied agencies in
Ireland. EBS also has a direct telephone based distribution division, EBS Direct. EBS offers residential mortgages and savings products, together with life and property insurance on an agency basis. It had a 0.7 per cent. share of the retail
savings market in 2012 and an 11 per cent. share of outstanding retail mortgage balances. At 31 December 2012, the Tier 1 and total capital ratios for EBS were 8.62 per cent. and 9.87 per cent., respectively. In December 2007, EBS established Haven Mortgages Limited (Haven), a wholly owned subsidiary focused on mortgage distribution through the intermediary market
which, prior to 2005, had not been part of its target market. Haven is authorised by the Central Bank of Ireland as a retail credit firm under Part V of the Central Bank Act 1997 (as amended). Haven has its own board of directors and the autonomy to
grow and establish its business around the needs of its customer (the intermediary). Haven offers a full range of prime mortgages. In December 2008, EBS established
EBS Mortgage Finance, a wholly owned subsidiary which is regulated by the Central Bank of Ireland. EBS Mortgage Finance is a designated mortgage credit institution for the purposes of the Asset Covered Securities Acts 2001 and 2007 (as amended) and
also holds a banking licence. Its purpose is to issue Mortgage Covered Securities for the financing of loans secured on residential property in accordance with the Asset Covered Securities legislation. Such loans may be made directly by EBS Mortgage
Finance or may be purchased from EBS and other members of the EBS Group or third parties. On 1 December 2008, 1 June 2009, 1 May 2010 and 1 November 2011, EBS transferred to EBS Mortgage Finance certain Irish residential loans
and related security held by it and certain of its Irish residential loan business related to such loans and security. The aggregate book value of the Irish residential loans transferred was approximately  3.41 billion in respect of the transfer on 1 December 2008;  1.74 billion in respect of the transfer on 1 June 2009;
 803 million in respect of the transfer on 1 May 2010; and  2.49 billion in respect of the transfer on 1 November 2011. As at 31 December
2012, the total amount of principal outstanding in the covered assets pool, including mortgage loans and cash was  5.8 billion (2011:  6.8 billion). In December 2008, EBS Mortgage Finance launched a  6 billion Mortgage
Covered Securities Programme. As at 31 December 2012, the total amount of principal outstanding in respect of the mortgage covered securities issued was  3.15 billion (2011:  3.6 billion) of which  0.05 billion was held by debt investors. The remaining  3.1 billion was issued to EBS.








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m  Investments in Group undertakings(continued) Principal subsidiary undertaking incorporated outside the Republic of Ireland  Nature of businessAIB Group (UK) p.l.c.

Banking and financial servicestrading as First Trust Bank in Northern Ireland
trading as Allied Irish Bank (GB) in Great BritainRegistered office:4 Queens Square, Belfast, BT1 3DJ The above subsidiary undertaking is a wholly-owned subsidiary of Allied Irish Banks, p.l.c.. The registered office is located in the
principal country of operation. The issued share capital is denominated in ordinary shares. In presenting details of the principal subsidiary undertakings, the
exemption permitted by the European Communities (Credit Institutions: Accounts) Regulations, 1992, has been availed of and, in accordance with the regulations, Allied Irish Banks, p.l.c. will annex a full listing of subsidiary undertakings to its
annual return to the Companies Registration Office. Guarantees given to subsidiaries by Allied Irish Banks, p.l.c. Each of the companies listed below, and consolidated into these accounts, have availed of the exemption from filing its individual accounts as set out in Section 17
of the Companies (Amendment) Act 1986. In accordance with the Act, Allied Irish Banks, p.l.c. has irrevocably guaranteed the liabilities of these subsidiaries.  AIB Capital Markets plc

Traprop LimitedAIB Corporate Banking Limited

Jonent Downs LimitedAIB Corporate Finance Limited

SkonacAIB Holdings (Ireland) Limited

SkobarAIB Finance Limited

SkodellAllied Irish Leasing Limited

SkovaleAIB International Leasing Limited

SkopekAIB Leasing Limited

SkobioAIB Services Limited

Wallkav LimitedAIB Venture Capital Limited

Marro Properties LimitedAllied Combined Trust Limited

Ammonite LimitedAllied Irish Banks (Holdings & Investments) Limited

AIB Capital Exchange Offering 2009 LimitedAllied Irish Finance Limited

AIB European Investments LimitedAllied Irish Nominees Limited

P B Nominees LimitedEyke Limited

Alibank Nominees LimitedFirst Venture Fund Limited

AIB Combined Leasing LimitedHengram Limited

Radstock LimitedThe Hire Purchase Company of Ireland Limited

Rushwood Holdings LimitedBlogram Limited

The Royal Bank of Ireland LimitedSanditon Limited

The Munster and Leinster Bank LimitedS. & M. (Limerick) Limited

Mezzanine Management LimitedAIB International Finance

Fullplex Management Company LimitedAIB Investment Company

AIB Investment Services LimitedGeneral Estates and Trust Company Limited

AIB Financial Services LimitedAIB Limited

AIB Insurance Services LimitedCommdec Limited

AIB 24 Hour Services LimitedDohcar Limited

AIB Telephone Services LimitedDohhen Limited

AIB Commercial Finance LimitedKavwall Limited

AIB Debt Management Limited








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m  Investments in Group undertakings(continued) Acquisition of subsidiary Included in the Groups consolidated
loans and receivables to customers is  3,539 million (2011:  3,899 million) of loans held through
securitisation vehicles Emerald No.4, Emerald No.5 and Mespil 1 RMBS Limited. These were acquired by AIB as part of the acquisition of EBS Limited. Emerald
Mortgages No.4 plc The total carrying amount of the original residential mortgages transferred by EBS Limited to Emerald Mortgages No.4 plc (Emerald
4) as part of the securitisation amounts to  1,500 million. The amount of transferred secured loans that the Group has recognised at 31 December
2012 is  868 million. The carrying amount of the bonds issued by Emerald 4 to third party investors amounts to  846 million. The carrying amount of the loan
note in EBS issued to Emerald 4 amounts to  872 million and is included within customer accounts (note r). Emerald Mortgages No.5 The total carrying amount of original
residential mortgages transferred by EBS Limited to Emerald Mortgages No.5 (Emerald 5) as part of the securitisation amounts to  2,500 million.
The amount of transferred secured loans that the Group has recognised at 31 December 2012 is  1,716 million. Bonds were issued by Emerald 5 to EBS but these are not shown in the Groups
financial statements, as these bonds are eliminated on consolidation. Mespil 1 RMBS Limited (Mespil) The total carrying amount of secured loans that the Group has recognised as at 31 December 2012 is  955 million in relation to the transfers from EBS Limited and Haven Mortgages Limited. The bonds issued by Mespil to EBS are not shown in the Groups financial statements, as these bonds are
eliminated on consolidation.  2012


2011n  Intangible assets

Software m


Other m


Total  m


Software m


Other m


Total mCostAt 1 January


532



3



535



562



3



565Additions  internally generated


59







59



25







25 externally purchased


9







9



6







6Amounts written off(1)














(46
)






(46)Disposals














(15
)






(15)At 31 December


600



3



603



532



3



535Amortisation/impairmentAt 1 January


378



3



381



377



3



380Amortisation for the year


52







52



59







59Impairment for the year


2







2



3







3Amounts written off(1)














(46
)






(46)Disposals














(15
)






(15)At 31 December


432



3



435



378



3



381Net book value at 31 December


168







168



154







154 (1)Relates to assets which are no longer in use with
a nil carrying value. Internally generated intangible assets under construction amounted to:
 44 million (31 December 2011:  30 million). Internally generated software amounted to:  300 million (31 December
2011:  264 million).








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o  Property, plant and equipment  Property


Equipment


TotalFreehold 

 m


Long
leasehold 
 m


Leasehold
under 50 years
 m


 m


 mCostAt 1 January 2012


125



85



84



407



701Reclassifications


1



(1
)










Additions


1







7



24



32Disposals


(1
)






(9)



(14)



(24)Amounts written off(1)










(1)



(2)



(3)At 31 December 2012


126



84



81



415



706Depreciation/impairmentAt 1 January 2012


31



20



48



324



423Depreciation charge for the year


4



2



8



25



39Impairment for the year


2















2Disposals










(9)



(13)



(22)Amounts written off(1)










(1)



(2)



(3)At 31 December 2012


37



22



46



334



439Net book value at 31 December 2012


89



62



35



81



267  Property


Equipment


TotalFreehold 

 m


Longleasehold 
 m


Leasehold  under 50  years
 m


 m


 mCostAt 1 January 2011


118



82



85



416



701Reclassification from disposal groups and non-current assets held for sale


1



3











4Additions






1



4



11



16Transfer of business(2)


6















6Disposals






(1
)


(5)



(20)



(26)At 31 December 2011


125



85



84



407



701Depreciation/impairmentAt 1 January 2011


26



19



46



315



406Depreciation charge for the year


4



2



6



27



39Transfer of business(2)


1















1Disposals






(1
)


(4)



(18)



(23)At 31 December 2011


31



20



48



324



423Net book value at 31 December 2011


94



65



36



83



278 (1)Relates to assets which are no longer in use with
a Nil carrying value. (2)Internal transfer from a subsidiary. The net book value of property occupied by Allied Irish Banks, p.l.c. for its own activities was
 185 million (2011:  195 million). Property and equipment includes  2 million for items in the course of
construction (2011:Nil).








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p  Deferred taxation

2012
 m


2011  mDeferred tax assets:Provision for impairment of loans and receivables






1Available for sale securities






135Retirement benefits


92



105Temporary difference on provisions for future commitments in relation to the funding of Icarom plc (under Administration)






1Cash flow hedges


8



Unutilised tax losses


2,800



2,513Other


87



3Total gross deferred tax assets


2,987



2,758Deferred tax liabilities:Cash flow hedges






(14)Assets used in business


(15
)


(6)Available for sale securities


(41
)


Total gross deferred tax liabilities


(56
)


(20)Net deferred tax assets


2,931



2,738Represented on the balance sheet as follows:Deferred tax assets


2,931



2,738 For each of the years ended 31 December 2012 and 2011, full provision has been made for capital allowances and other temporary
differences.  Analysis of movements in deferred taxation

2012
 m


2011  mAt 1 January


2,738



1,836Exchange translation and other adjustments






(1)Deferred tax through other comprehensive income


(66
)


97Income statement


259



806At 31 December


2,931



2,738 Comments on the basis of recognition of deferred tax assets on unused tax losses are included in Critical accounting policies and
estimates on pages 46 and 47. Comments on the prospective regulatory capital treatment of deferred tax assets are included in Risk factors on page 63. At 31 December 2012, recognised deferred tax assets on tax losses and other temporary differences, net of deferred tax liabilities, totalled  2,931 million (2011:  2,738 million). The most significant tax losses arise in the Irish tax jurisdiction and
their utilisation is dependent on future taxable profits. Temporary differences recognised in other comprehensive income consist of deferred tax on available for
sale securities, cash flow hedges and actuarial gains/losses on retirement benefit schemes. Temporary differences recognised in the income statement consist of provision for impairment of loans and receivables, amortised income, assets leased to
customers, and assets used in the course of business.








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q    Deposits by central banks and banks

2012
 m





2011
 mCentral banksSecurities sold under agreements to repurchase

19,760





26,966Other borrowings







30219,760





27,268BanksSecurities sold under agreements to repurchase

5,414





4,706Other borrowings

14,215





14,17619,629





18,88239,389





46,150Of which:Due to third parties

25,752





32,675Due to subsidiary undertakings(1)

13,637





13,47539,389





46,150Amounts include:Due to related party







 (1)Amounts due to subsidiary undertakings may
include repurchase agreements. Details of AIBs sale and repurchase activity are set out in note 55 to the Groups financial statements. Allied Irish Banks, p.l.c. has granted a floating charge over certain residential mortgage pools, the drawings against which were
 90 million at 31 December 2012 (2011: Nil). Financial
assets pledged under existing agreements to repurchase, and providing access to future funding facilities with central banks and banks are detailed in the following table:  2012


2011Central


Banks


Total


Central


Banks


Totalbanks
 m


 m


 m


banks  m


 m


 mTotal carrying value of financial assets pledged


22,984



6,807



29,791



32,832



5,350



38,182Of which:Government securities(1)


14,795



4,835



19,630



17,685



3,082



20,767Other securities


8,189



1,972



10,161



15,147



2,268



17,415 (1)Includes NAMA senior bonds.








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r   Customer accounts



2012    m




2011 mCurrent accounts




12,193





11,522Demand deposits




6,312





6,332Time deposits




30,246





28,92048,751





46,774Of which:Non-interest bearing current accountsDomestic offices




11,633





10,147Foreign offices




214





191Interest bearing deposits, current accounts and short-term borrowingsDomestic offices




34,631





33,970Foreign offices




2,273





2,46648,751





46,774Of which:Due to third parties




42,363





39,910Due to subsidiary undertakings(1)




6,388





6,86448,751





46,774Amounts include:Due to associated undertakings




1,259





1,373(1)Amounts due to subsidiary undertakings may include repurchase agreements.s   Debt securities in issue



2012    m




2011 mBonds and medium term notes:European medium term note programme




5,142





9,689Other debt securities in issue:Commercial certificates of deposit










2135,142





9,902t   Other liabilities



2012    m




2011 mItems in transit




20





28Creditors




3





Future commitments in relation to the funding of Icarom(1)










11Fair value of hedged liability positions




165





128Other




332





249520





416 (1)Obligations to Icarom were fully satisfied at 31 December 2012.








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u
Provisions for liabilities and commitments Voluntary severance programme Details of the Groups voluntary severance programme are set out in note 43 to the consolidated financial statements and these details apply equally to Allied Irish
Banks, p.l.c.. Allied Irish Banks, p.l.c. expects that total past service costs arising under the terms of the early retirement scheme will ultimately amount to  146 million, based on current best estimates (note b). This provision is included within pension scheme liabilities. The cost of offering the voluntary severance scheme to eligible employees is estimated to amount to  112 million of which  35 million had been utilised at 31 December 2012. Therefore, a provision has been made amounting to  77 million at 31 December 2012 which is based on Managements best estimate of the amount required to settle the additional costs expected to arise from the scheme. These provisions, totalling  258 million, have been netted with a
curtailment gain of  29 million and included in termination benefits under administrative expenses (note a) in the income statement.








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u
Provisions for liabilities and commitments 31 December 2012Liabilities   and   charges


NAMA(1)constructive   
obligation


NAMA(2)provisions


Onerous(3)contracts


Legal claims


Other(4)provisions


Voluntaryseverance  scheme


Total m


 m


 m


 m


 m


 m


 m


 mAt 1 January


24







298



6



5



103







436Transfer out


(8)



























(8)Exchange translation adjustments






















1







1Amounts charged to income statement


10(5)







18(2)



6



1



54



112



201Amounts released to income statement


(1)(5)







(88)(2)



(1)



(1)



(5)







(96)Provisions utilised


(4)







(207)



(1)







(11)



(35)



(258)At 31 December


21







21



10



5



142



77



2762011Liabilitiesandcharges


NAMA(1)constructive   obligation


NAMA(2)provisions


Onerouscontracts


Legal claims


Other(2)provisions


Total m


 m


 m


 m


 m


 m


 mAt 1 January


17



293







3



4



69



386Acquisition of subsidiary(6)






















73



73Amounts charged to income statement


17
(4)






298



5



1



39



360Amounts released to income statement






(146)







(2
)






(50)



(198
)Provisions utilised


(10
)


(147)















(28)



(185
)At 31 December


24







298



6



5



103



436 The total provisions for liabilities and commitments expected to be settled within one year amount to  230 million (31 December 2011 408 million). 1)At 31 December 2010, the transfer in 2011 of certain loans to NAMA at a
discount was deemed unavoidable, accordingly a provision of  293 million being a constructive obligation was made for the expected discount. (2)NAMA provisions represent amounts due to NAMA in respect of adjustments to
transfers which had not been settled at 31 December 2011.   At 31 December 2012,  88 million of this provision was released to the
income statement. This followed the resolution with NAMA of certain issues relating to transfers which had taken place in earlier periods. In addition,  18 million was charged to the income statement
in respect of Section 93 claims i.e. new claims under the NAMA Act. (3)Provisions for the unavoidable costs expected to arise from branch closures. (4)Includes provisions for refunds to customers in respect of payment protection
insurance, restructuring and reorganisation costs. (5)Included in
charge/(writeback) of provisions for liabilities and commitments in income statement. (6)Relates to the acquisition of Anglo IOM.








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v
Subordinated liabilities and other capital instruments All outstanding subordinated liabilities and other capital
instruments of AIB Group are issued by Allied Irish Banks, p.l.c. and are detailed in note 44 to the consolidated financial statements.  w
Share capital The share capital and share premium of Allied Irish Banks, p.l.c., are detailed in note 45 to the
consolidated financial statements, all of which relates to Allied Irish Banks, p.l.c..  x
Capital reserves 2012






2011Capitalcontributionreserves






Othercapitalreserves






Total






Capitalcontributionreserves






Othercapitalreserves






Total m






 m






 m






 m






 m






 mAt 1 January




1,855







156







2,011















156







156Capital contributions:Anglo business transfer (note 22)*




























1,498















1,498EBS acquisition(1) (note 23)*




























742















742CCNs issuance (note v)




























447















447























2,687















2,687Transfer to revenue reserves:Anglo business transfer




(187
)














(187
)






(66)















(66
)EBS acquisition




























(742)















(742
)CCNs issuance (note v)




(60
)














(60
)






(24)















(24
)(247
)














(247
)






(832)















(832
)At 31 December




1,608







156







1,764







1,855







156







2,011 *To the consolidated financial statements (1)The capital contribution is higher for Group than at Allied Irish Banks, p.l.c.
level due to the elimination of negative mark to market on intercompany investments between Allied Irish Banks, p.l.c. and EBS. The capital contributions are
initially non-distributable but may become distributable as outlined in accounting policy number 28. The transfers to revenue reserves relate to the capital contributions being deemed distributable.  y
Capital redemption reserves All capital redemption reserves are held by Allied Irish Banks p.l.c. and are detailed
in note 50 to the consolidated financial statements.  z
Contributions from the Minister for Finance and the NPRFC Capital contributions from the Minister for Finance and
the NPRFC to Allied Irish Banks p.l.c. are detailed in note 51 to the consolidated financial statements.








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aa   Memorandum items: contingent liabilities and commitments, and contingent assets Allied Irish Banks, p.l.c. has given guarantees in respect of the liabilities of certain of its subsidiaries and has also given guarantees to the satisfaction of the
relevant regulatory authorities for the protection of the depositors of certain of its banking subsidiaries in the various jurisdictions in which such subsidiaries operate (note m). Details of contingent liabilities and commitments entered into by AIB Group are set out in note 53 to the consolidated financial statements. The commentary on Legal proceedings, Contingent liability/contingent assets and Participation in TARGET 2  Ireland, as set out in note 53 to the consolidated
financial statements, applies also to Allied Irish Banks, p.l.c. The following tables give the nominal or contract amounts of contingent liabilities and commitments
for Allied Irish Banks, p.l.c.:  Contract amount2012




2011 m




 mContingent liabilities - credit relatedGuarantees and assets pledged as collateral security:Guarantees and irrevocable letters of credit




761





1,218Other contingent liabilities




334





3571,095





1,575CommitmentsDocumentary credits and short-term trade-related transactions




16





17Undrawn note issuance and revolving underwriting facilities










Undrawn formal standby facilities, credit lines and other commitments to lend:Less than 1 year(1)




6,144





6,2551 year and over(2)




1,530





1,9977,690





8,2698,785





9,844 (1)An original maturity of up to and including 1
year or which may be cancelled at any time without notice. (2)With an original
maturity of more than 1 year.  Contingent liabilities(1)


Commitments2012


2011


2012


2011 m


 m


 m


 mConcentration of exposureRepublic of Ireland


848



1,073



7,517



7,859United Kingdom






20



132



177United States of America


247



475



41



185Rest of the world






7







48Total


1,095



1,575



7,690



8,269 (1)Included in exposures are amounts relating to
Group subsidiaries of  27 million (2011:  50 million). Masterscale grade The credit ratings of contingent liabilities and commitments
as at 31 December 2012 and 31 December 2011 are set out in the following table. 2012


2011 m


 m1 to 3


3,596



5,1474 to 10


2,832



2,60911 to 13


1,646



1,496Unrated


711



5928,785



9,844








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ab   Transfer of financial assets Allied Irish Banks, p.l.c. enters into transactions in the normal course of business in which it transfers previously recognised financial assets. Transferred financial
assets may, in accordance with IAS 39 Financial Instruments: Recognition and Measurement: (i)
continue to be recognised in their entirety; or (ii)
be derecognised in their entirety but Allied Irish Banks, p.l.c. retains some continuing involvement. The most common
transactions where the transferred assets are not derecognised in their entirety are sale and repurchase agreements. Details of these transactions are set out in note 55 to the consolidated financial statements and apply equally to Allied Irish
Banks, p.l.c.. (i)  Transferred financial assets not derecognised in their entirety The following table sets out the carrying value of financial assets which did not qualify for derecognition and their associated financial liabilities:  2012Carrying


Carrying


Fair


Fair


Netamount of


amount of


value of


value of


positiontransferred


associated


transferred


associatedassets


liabilities


assets


liabilities m


 m


 mSale and repurchase agreements


29,791
(1)


25,174



29,837



25,174



4,663 (1)Includes NAMA senior bonds.  (ii)
Transferred financial assets derecognised in their entirety but Allied Irish Banks, p.l.c. retains some continuing involvement Allied Irish Banks, p.l.c. has a continuing involvement in transferred financial assets where it retains any of the risks and rewards of ownership of the transferred
financial assets. Set out below are transactions in which Allied Irish Banks p.l.c. has a continuing involvement in financial assets transferred. NAMA Details in relation to the continuing involvement of assets transferred to NAMA by Allied Irish Banks, p.l.c. are set out in note 55 to the consolidated
financial statements. The carrying value of assets transferred during 2010 and 2011 amounted to  13,483 million, all of which were derecognised. In 2012, Allied Irish Banks, p.l.c. recognised  16 million (cumulative
 37 million) in the income statement for the servicing of all financial assets transferred to NAMA by the Group. AIB Mortgage Bank In 2011, Allied Irish Banks, p.l.c. transferred
substantially all of its mortgage intermediary originated Irish residential loans, related security and related business of approximately  4.2 billion to
AIB Mortgage Bank. Under an Outsourcing and Agency Agreement dated 8 February 2006, Allied Irish Banks, p.l.c., as Service Agent for AIB Mortgage Bank,
originates residential mortgage loans through its retail branch network and intermediary channels in the Republic of Ireland, services the mortgage loans and provides treasury services in connection with financing, as well as a range of other
support services. In 2012, Allied Irish Banks, p.l.c. recognised  58 million (cumulative  280 million) in
the income statement for the provision of services under this agreement.








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ac   Fair value of financial instruments Details of the methodologies employed by AIB in measuring fair value are set out in note 56 to the consolidated financial statements. Readers of these financial statements are advised to use caution when using the data in the following table to evaluate the financial position of Allied Irish Banks,
p.l.c. or to make comparisons with other institutions. Fair value information is not provided for items that do not meet the definition of a financial instrument. These items include intangible assets such as the value of the branch network and the
long-term relationships with depositors, premises and equipment and shareholders equity. These items are material and accordingly, the fair value information presented does not purport to represent, nor should it be construed to represent, the
underlying value of the Company as a going concern at 31 December 2012.  31 December 2012


31 December 2011Carrying


Fair


Carrying


Fairamount


value


amount


valueNotes(1)


 m


 m


 m


 mFinancial assetsCash and balances at central banks


a



1,076



1,076



1,067



1,067Items in course of collection


a



95



95



100



100Disposal groups and non-current assets held for sale


c



549



435



1,128



944Trading portfolio financial assets


b



24



24



56



56Derivative financial instruments


b



2,768



2,768



3,025



3,025Loans and receivables to banks


d



31,284



31,337



36,028



36,081Loans and receivables to customers


e



37,234



34,759



42,074



38,427NAMA senior bonds


f



17,082



17,139



19,509



19,711Financial investments available for sale


b



14,930



14,930



13,336



13,336Fair value hedged asset positions


g











13



Financial liabilitiesDeposits by central banks and banks


h



39,389



39,439



46,150



46,161Customer accounts


h



48,751



49,238



46,774



47,096Derivative financial instruments


b



3,541



3,541



4,061



4,061Debt securities in issue


i



5,142



5,207



9,902



8,801Subordinated liabilities and other capital instruments


i



1,271



1,650



1,209



1,120Fair value hedged liability positions


g



165







128



 (1)A description of the fair value methodologies is detailed in note 56 to the
consolidated financial statements.








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ac   Fair value of financial instruments(continued) Fair value hierarchy The following table sets out, by financial instrument
measured at fair value, the valuation methodologies(1) adopted in the financial statements as at 31 December 2012 and as at 31 December 2011.  2012Level 1


Level 2


Level 3


Total m


 m


 m


 mFinancial assetsDisposal groups and non-current assets held for sale












196



196Trading portfolio financial assets




23



1







24Derivative financial instruments








2,768







2,768Financial investments available for sale  debt securities




14,753



64



12



14,829 equity securities




53



1



47



10114,829



2,834



255



17,918Financial liabilitiesDerivative financial instruments








3,521



20



3,541



3,521



20



3,5412011Level 1


Level 2


Level 3


Total m


 m


 m


 mFinancial assetsTrading portfolio financial assets




50



6







56Derivative financial instruments








3,025







3,025Financial investments available for sale  debt securities




11,881



1,239



12



13,132 equity securities




48



10



146



20411,979



4,280



158



16,417Financial liabilitiesDerivative financial instruments








3,952



109



4,061



3,952



109



4,061 (1)Valuation methodologies in the fair value hierarchy: (a)
Level 1  financial assets and liabilities measured using quoted market prices (unadjusted). (b)
Level 2  financial assets and liabilities measured using valuation techniques which use observable market data. (c)
Level 3  financial assets and liabilities measured using valuation techniques which use unobservable market data.








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ac   Fair value of financial instruments(continued) Significant transfers between Level 1 and Level 2 of the fair value hierarchy  2012


2011Trading


Debt


Total


Trading


Debt


Totalportfolio


securities





portfolio


securitiesFinancial assets

 m


 m


 m


 m


 m


 mTransfer into Level 1 from Level 2






908



908







61



61Transfer into Level 2 from Level 1


















178



178 Transfers into Level 1 from Level 2 occurred due to increased availability of reliable quoted market prices which were not previously
available. Reconciliation of balances in Level 3 of the fair value hierarchy The following tables show a reconciliation from the beginning balances to the ending balances for the years ended 31 December 2012 and 31 December 2011 for fair
value measurements in Level 3 of the fair value hierarchy:  2012Financial assets


Financial liabilitiesTrading


Derivatives


AFS


Total


Derivatives


Totalportfolio





Debtsecurities


Equitysecurities m


 m


 m


 m


 m


 m


 mAt 1 January 2012










12



146



158



109



109Designated at fair value through profit or loss














196



196







Transfers out of level 3














(18
)


(18)







Total gains or losses in:Profit or loss














(78
)


(78)



39



39Other comprehensive income


























Net NAMA subordinated bonds














(3
)


(3)







Settlements






















(128
)


(128)At 31 December 2012










12



243



255



20



20Transfers out of Level 3 occurred because of increased observability
in the market prices of these instruments.2011Financial assets


Financial liabilitiesTrading


Derivatives


AFS


Total


Derivatives


Totalportfolio





Debt


Equitysecurities


securities m


 m


 m


 m


 m


 m


 mAt 1 January 2011










12



195



207



122



122Transfers out of Level 3






















(4
)


(4)Total gains or losses in:Profit or loss














(106
)


(106)



71



71Other comprehensive income














51



51



3



3Net NAMA subordinated bonds additions














11



11







Additions














18



18







Sales














(23
)


(23)







Settlements






















(83
)


(83)At 31 December 2011










12



146



158



109



109 Transfers out of Level 3 occurred because of increased observability in the market prices of these instruments.








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ac   Fair value of financial instruments(continued) Losses included in profit or loss for the year in the previous tables are presented in the income statement and are recognised as:  2012




2011 m




 mNet trading loss


(39
)




(71
)Provisions for impairment of financial investments available for sale


(78
)




(106
)Total


(117
)




(177
)Losses for the year included in the income statement relating to financial assets and liabilities held at the end of the year:2012




2011 m




 mNet trading income


(6
)




(50
)Provisions for impairment of financial investments available for sale


(78
)




(106
)Total


(84
)




(156
) Sensitivity of Level 3 measurements The
implementation of valuation techniques involves a considerable degree of judgement. While the Company believes its estimates of fair value are appropriate, the use of different measurements or assumptions could lead to different fair values. The
following table sets out the impact of using reasonably possible alternative assumptions, including the impact of changing credit spread assumptions for debt securities. 2012Level 3Effect on incomestatement


Effect on othercomprehensive incomeFavourable


Unfavourable


Favourable


Unfavourable m


 m


 m


 mClasses of financial assetsFinancial investmentsavailable for sale  debt securities














 equity securities






(45
)


140



Total






(45
)


140



Classes of financial liabilitiesDerivative financial instruments


3



(3
)






Total


3



(3
)






In relation to the investment in ALH which is designated as an equity
investment at fair value through profit or loss (and categorised as held for sale) this transaction was concluded in March 2013 (note 69 to the consolidated financial statements).2011Level 3Effect on incomestatement


Effect on othercomprehensive incomeFavourable


Unfavourable


Favourable


Unfavourable m


 m


 m


 mClasses of financial assetsFinancial investmentsavailable for sale  debt securities














 equity securities










233



(54
)Total










233



(54
)Classes of financial liabilitiesDerivative financial instruments


58



(58
)






Total


58



(58
)






 Day 1 gain or loss: No difference existed
between the fair value at initial recognition of financial instruments and the amount that was determined at that date using a valuation technique incorporating significant unobservable data.








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ad   Classification and measurement of financial assets and financial liabilities The following table analyses the carrying amounts of the financial assets and financial liabilities by category as defined in IAS 39 Financial Instruments: Recognition
and Measurement and by statement of financial position heading.  2012At fair value throughprofit and loss


At fair valuethrough equity


At amortisedcost


TotalAt fair valuethroughprofit and loss
 m


Fair valuehedgederivatives
 m


Cashflowhedgederivatives m


Availablefor salesecurities m


Loans
andreceivables m


Other 

 m


 mFinancial assetsCash and balances at central banks


















558



518(1)



1,076Items in the course of collection


















95







95Disposal groups and non-current assets held for sale


196
(2)














353







549Trading portfolio financial assets


24























24Derivative financial instruments(3)


1,664



352



752















2,768Loans and receivables to banks(4)


















31,284







31,284Loans and receivables to customers(5)


















37,234







37,234NAMA senior bonds


















17,082







17,082Financial investments available for sale














14,930











14,930Other financial assets






















418



4181,884



352



752



14,930



86,606



936



105,460Financial liabilitiesDeposits by central banks and banks(6)






















39,389



39,389Customer accounts(7)






















48,751



48,751Derivative financial instruments(8)


1,864



732



945















3,541Debt securities in issue(9)






















5,142



5,142Subordinated liabilities and other capital instruments






















1,271



1,271Other financial liabilities






















330



3301,864



732



945











94,883



98,424








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|LOGO |  | Notes to the financial statements  Allied Irish Banks, p.l.c. |  | 






ad   Classification and measurement of financial assets and financial liabilities(continued)  2011At fair valuethroughprofit and loss


At fair valuethrough equity


At amortisedcostHeld for


Fair value


Cashflow


Available


Loans


Other


Totaltrading


hedge


hedge


for sale


andderivatives


derivatives


securities


receivables m


 m


 m


 m


 m


 m


 mFinancial assetsCash and balances at central banks


















527



540(1)



1,067Items in the course of collection


















100







100Disposal groups and non-current assets held for sale


















1,129







1,129Trading portfolio financial assets


56























56Derivative financial instruments(3)


1,985



254



786















3,025Loans and receivables to banks(4)


















36,028







36,028Loans and receivables to customers(5)


















42,074







42,074NAMA senior bonds


















19,509







19,509Financial investments available for sale














13,336











13,336Other financial assets






















600



6002,041



254



786



13,336



99,367



1,140



116,924Financial liabilitiesDeposits by central banks and banks(6)






















46,150



46,150Customer accounts(7)






















46,774



46,774Derivative financial instruments(8)


2,374



656



1,031















4,061Debt securities in issue(9)






















9,902



9,902Subordinated liabilities and other capital instruments






















1,209



1,209Other financial liabilities






















240



2402,374



656



1,031











104,275



108,336 (1)Comprises cash on hand. (2)Designated on initial recognition as at fair value through profit or loss. All
other financial assets/financial liabilities in this column are held for trading. (3)Includes exposure to subsidiary undertakings of  293 million (2011:  356 million). (4)Includes exposure to subsidiary undertakings of  29,709 million (2011:  33,441 million). (5)Includes exposure to subsidiary undertakings of  11,891 million (2011:  11,868 million). (6)Includes amounts due to subsidiary undertakings of  13,637 million (2011:  13,475 million). (7)Includes amounts due to subsidiary undertakings of  6,388 million (2011:  6,864 million). (8)Includes amounts due to subsidiary undertakings of  485 million (2011:  448 million). (9)Includes amounts due to subsidiary undertakings of  46 million (2011: 47 million). ae  Statement of cash flows Analysis of cash and cash
equivalents For the purpose of the statement of cash flows, cash equivalents comprise the following balances with less than three months maturity from the date
of acquisition:  2012
 m


2011 m


2010 mCash and balances at central banks


1,076



1,067



2,007Loans and receivables to banks


1,358



2,025



1,6112,434



3,092



3,618








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af   Financial assets and financial liabilities by contractual residual maturity  2012Repayable


3 months or less


1 year or less


5 years or less


Over


Totalon demand


but not repayable


but over


but over


5 yearson demand


3 months


1 year m


 m


 m


 m


 m


 mFinancial assetsFinancial assets of disposal groups(1)(3)


237







17



26



195



475Trading portfolio financial assets(1)






2







15



5



22Derivative financial instruments(2)






202



261



1,270



1,035



2,768Loans and receivables to banks(3)


16,794



5,373



1,140



7,734



247



31,288Loans and receivables to customers(3)


24,195



5,326



3,540



5,224



10,031



48,316NAMA senior bonds(4)






17,082















17,082Financial investments available for sale(1)


4



157



637



7,912



6,119



14,829Other financial assets






418















41841,230



28,560



5,595



22,181



17,632



115,198Financial liabilitiesDeposits by central banks and banks


7,179



17,973



2,219



11,948



70



39,389Customer accounts


21,653



16,326



8,343



2,412



17



48,751Derivative financial instruments(2)






171



223



1,266



1,881



3,541Debt securities in issue(5)






2,368







2,774







5,142Subordinated liabilities and other capital instruments














1,237



34



1,271Other financial liabilities


330



















33029,162



36,838



10,785



19,637



2,002



98,4242011Repayable


3 months or less


1 year or less


5 years or less


Over


Totalon demand


but not repayable


but over


but over


5 yearson demand


3 months


1 year m


 m


 m


 m


 m


 mFinancial assetsFinancial assets of disposal groups(1)(3)


5



26



212



671



215



1,129Trading portfolio financial assets(1)






8







35



11



54Derivative financial instruments(2)






96



179



1,167



1,583



3,025Loans and receivables to banks(3)


15,607



7,804



2,515



9,824



282



36,032Loans and receivables to customers(3)


19,410



5,439



5,074



9,978



12,460



52,361NAMA senior bonds(4)






19,509















19,509Financial investments available for sale(1)






1,018



989



5,633



5,492



13,132Other financial assets


2



598















60035,024



34,498



8,969



27,308



20,043



125,842Financial liabilitiesDeposits by central banks and banks


6,136



33,344



2,477



4,141



52



46,150Customer accounts


21,801



14,096



5,791



4,601



485



46,774Derivative financial instruments(2)






405



272



1,017



2,367



4,061Debt securities in issue(5)






2,091



2,638



5,173







9,902Subordinated liabilities and other capital instruments










7



1,177



25



1,209Other financial liabilities


240



















24028,177



49,936



11,185



16,109



2,929



108,336 (1)Excluding equity shares. (2)Shown by maturity date of contract. (3)Shown gross of provisions for impairment and unearned income. (4))New notes will be issued at each maturity date, with the next maturity date
being 1 March 2013. Upon maturity, the issuer has the option to settle in cash or issue new notes and to date has issued new notes. (5)Includes
 46 million issued to subsidiary companies in both 2012 and 2011. The balances shown above for Allied Irish Banks, p.l.c. include exposures to subsidiary undertakings.








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af   Financial assets and financial
liabilities by contractual residual maturity(continued) Financial liabilities by undiscounted contractual
maturity - contingent liabilities and commitments The undiscounted cash flows potentially payable under guarantees and similar contracts, included below within
contingent liabilities, are classified on the basis of the earliest date they can be called. The Company is only called upon to satisfy a guarantee when the guaranteed party fails to meet its obligations. The Company expects that most guarantees it
provides will expire unused. The Company have given commitments to provide funds to customers under undrawn facilities. The undiscounted cash flows have been
classified on the basis of the earliest date that the facility can be drawn. The Company does not expect all facilities to be drawn, and some may lapse before drawdown.  2012Payable on


3 months or less


1 year or less


5 years or less


Over


Totaldemand


but not repayable


but over


but over


5 yearson demand


3 months


1 year m


 m


 m


 m


 m


 mContingent liabilities(1)


1,095



















1,095Commitments


7,690



















7,6908,785



















8,7852011Payable on


3 months or less


1 year or less


5 years or less


Over


Totaldemand


but not repayable


but over


but over


5 yearson demand


3 months


1 year m


 m


 m


 m


 m


 mContingent liabilities(1)


1,575



















1,575Commitments


8,269



















8,2699,844



















9,844 (1)Included in exposure are amounts relating to
Group subsidiaries of  27 million (2011:  50 million). ag  Related party transactions Related parties of Allied Irish
Banks, p.l.c. (AIB) include subsidiary undertakings, associate undertakings and joint undertakings, post-employment benefits, Key Management Personnel and connected parties. The Irish Government is also considered a related party by
virtue of its effective control of AIB. Related party transactions are detailed in note 63 to the consolidated financial statements. ah  Commitments  2012


2011Capital expenditure

 m


 mEstimated outstanding commitments for capital expenditure not provided for in the financial statements


7



11Capital expenditure authorised but not yet contracted for


29



39 Operating lease rentals The total of future
minimum lease payments under non-cancellable operating leases are set out in the following table.  2012


2011 m


 mOne year


66



69One to two years


63



62Two to three years


62



59Three to four years


55



59Four to five years


35



52Over five years


149



173Total


430



474 Operating lease payments recognised as an expense for the year were  67 million (2011: 60 million). Sublease income amounted to Nil (2011: Nil). Included in the lease payments is
41 million (2011: 42 million) paid to other Group subsidiaries. Future minimum lease payments due to subsidiaries of Allied Irish Banks, p.l.c. amount to  180 million excluding VAT (2011:  229 million excluding VAT) and are included in the total of 
430 million in 2012 (2011: 474 million). Details of the sale and leaseback arrangements of AIB Group are set out
in note 14 to the consolidated financial statements.








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| |  | Statement of Directors responsibilities in relation to the Accounts |  | LOGO






The following statement, which should be read in conjunction with the statement of Auditors responsibilities set out
with their Audit Report, is made with a view to distinguish for shareholders the respective responsibilities of the Directors and of the Auditor in relation to the accounts. The Directors are responsible for preparing the Annual Report and the Group and Company financial statements, in accordance with applicable law and regulations. Company law requires the Directors to prepare Group and Company financial statements for each financial year. Under that law, the directors are required to prepare the
Group financial statements in accordance with IFRSs as adopted by the EU and have elected to prepare the Company financial statements in accordance with IFRSs as adopted by the EU and as applied in accordance with the provisions of the Companies
Acts, 1963 to 2012. The Directors have also elected to prepare the Group accounts in accordance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IASB). The Group and Company financial statements are required by law and IFRSs as adopted by the EU to present fairly the financial position and performance of the Group and
Company; the Companies Acts, 1963 to 2012 provide in relation to such financial statements that references in the relevant part of that Act to financial statements giving a true and fair view are references to their achieving a fair presentation. In preparing each of the Group and Company 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 that the financial statements comply with IFRS as adopted by the EU and IFRS issued by the IASB; and 
prepare the financial statements on the going concern basis unless it is inappropriate to presume that the Group and Company will continue in business. The Directors are responsible for keeping proper books of account that disclose with reasonable accuracy at any time the financial position of the Company and enable
them to ensure that its financial statements comply with the Companies Acts, 1963 to 2012. They are also responsible for taking such steps as are reasonably open to them to safeguard the assets of the Group and Company and to prevent and detect
fraud and other irregularities. Under applicable law, the Directors are also responsible for preparing a Directors Report and reports relating to directors remuneration and corporate governance that comply with that law and Enterprise
Securities Market (ESM) Rules. The Directors are responsible for the maintenance and integrity of the corporate and financial information included on
the Companys website. Legislation in Ireland governing the preparation and dissemination of financial statements may differ from legislation in other jurisdictions. The Directors that are listed on page 168 to 170 confirm, to the best of their knowledge and belief, that: 
the Group financial statements, prepared in accordance with IFRS as issued by the IASB and as adopted by the EU, give a true and fair view, in accordance with IFRSs as issued by the IASB and as adopted by the EU, of the
state of the Groups affairs as at 31 December 2012 and of its loss for the year then ended; 
the Company financial statements, prepared in accordance with IFRS as adopted by the EU, give a true and fair view, in accordance with IFRSs as adopted by the EU, of the state of the Companys affairs as at
31 December 2012 and of its loss for the year then ended; and 
the Directors report and the Financial Review and Risk Management sections, contained in the Annual Report includes a fair review of the development and performance of the business and the financial position of
the Group, together with a description of the principal risks and uncertainties faced by the Group. On behalf of the Board  David Hodgkinson

David DuffyChairman

Chief Executive Officer








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|LOGO |  | Report of Independent Registered Public Accounting Firm |  | 








To the Members and Board of Directors of Allied Irish Banks, p.l.c.: We have audited the accompanying consolidated statements of financial position of Allied Irish Banks, p.l.c. and subsidiaries (the Company) as at
31 December 2012 and 2011, and the related consolidated statements of income, consolidated statements of changes in equity, consolidated statements of comprehensive income and consolidated statements of cash flows and related notes for each of
the years in the three-year period ended 31 December 2012, including the disclosures marked as forms an integral part of the financial statements in the Risk Management section on pages 57 to 166, the Accounting
Policies section on pages 193 to 217. These consolidated financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining on a test basis, evidence supporting the amount and disclosures in the financial statements. An
audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of Allied Irish Banks,
p.l.c. and subsidiaries as at 31 December 2012 and 2011, and the results of their operations and their cash flows for each of the years in the three-year period ended 31 December 2012, in conformity with International Financial Reporting
Standards as issued by the International Accounting Standards Board (IASB) and International Financial Reporting Standards as adopted by the EU. We also
have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), Allied Irish Banks, p.l.c.s internal control over financial reporting as at 31 December 2012, based on criteria established
in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organisations of Treadway Commission (COSO), and our report dated 23 April 2013 expressed an unqualified opinion on the effectiveness of Allied Irish
Banks, p.l.c.s internal control over financial reporting   LOGO Chartered Accountants Dublin, Ireland 23 April 2013








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To the Members and Board of Directors of Allied Irish Banks, p.l.c.: We have audited Allied Irish Banks, p.l.c.s (the Company) internal control over financial reporting as at 31 December 2012, based on criteria
established in Internal Control - Integrated Framework by the Committee of Sponsoring Organisations of the Treadway Commission (COSO). Allied Irish Banks, p.l.c.s management is responsible for maintaining effective
internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting based on our audit. We conducted our audits in accordance
with the standards of the Public Company Accounting Oversight Board (United States). These standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluation the design and operating effectiveness of
internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion. A companys internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation
of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made in accordance with authorisations of management and directors of the company; and (3) use, or
disposition of the companys assets that could have a material effect on the financial statements. Because of its inherent limitations, internal control over
financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may be become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate. In our opinion, Allied Irish Banks, p.l.c. maintained, in all material respects, effective internal
control over financial reporting as at 31 December 2012, based on criteria in Internal Control - Integrated Framework issued by the Committee of Sponsoring Organisations of Treadway Commission (COSO). We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated statements of financial
position of Allied Irish Banks, p.l.c. and its subsidiaries as at 31 December 2012 and 2011, and related consolidated statements of income, consolidated statements of changes in equity, consolidated statements of cash flows, consolidated
statements of comprehensive income and the related notes to the financial statements, for each of the years in the three-year period ended 31 December 2012 and our report dated 23 April 2013 expressed an unqualified opinion on those
consolidated financial statements.   LOGO Chartered Accountants, Dublin, Ireland 23 April 2013








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PageSchedule to Report of the Directors


385Memorandum and Articles of association


388Reporting currency and exchange rates


395Offer and listing details


396Taxation


398Exchange controls


401Employees


402Description of property


403Other shareholder information


403








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Schedule to Report of the Directors Information required to be contained in the Directors Annual Report by the European Communities (Takeover Bids (Directive 2004/25/EC)) Regulations 2006. As required by these Regulations, the information contained below represents the position as of 31 December 2012. Capital Structure The authorised share capital of the Company is  11,092,752,297 divided into 702,000,000,000 Ordinary Shares of  0.01 each (Ordinary Shares),
3,500,000,000 2009 Non-Cumulative Preference Shares of 0.01 each (2009 Preference Shares) and 403,775,229,679 Deferred Shares of  0.01 each
(Deferred Shares). The issued share capital of the company is 517,152,776,363 Ordinary Shares and 3,500,000,000 2009 Preference Shares. For so long as
the National Pensions Reserve Fund Commission (NPRFC) holds 2009 Preference Shares, subject to certain exceptions, the consent of the Minster will be required for the passing of certain share capital resolutions of the Company, being
resolutions relating to: (i) an increase in the authorised share capital; (ii) a re-issue of Treasury Shares; (iii) the issue of any shares; or (iv) the redemption, consolidation, conversion or sub-division of the share capital.
The exceptions referred to above include any issue of shares made for the purposes of redeeming or purchasing the 2009 Preference Shares. Rights and Obligations
of Each Class of Share The Rights and Obligations of the Ordinary Shares and the 2009 Preference Shares are contained in a summary of the Memorandum and Articles
of Association on pages 388 to 394. Percentage of Total Share Capital Represented by Each Class of Share The Ordinary Shares represent approximately 63% of the authorised share capital and approximately 99.3% of the issued share capital of the Company. The 2009 Preference
Shares represent approximately 0.3% of the authorised share capital and approximately 0.7% of the issued share capital of the Company. The Deferred Shares represents approximately 36.4% of the authorised share capital none of which is in issue. Restrictions on the Transfer of Shares Save as set out below there are no
limitations in Irish law on the holding of the Ordinary Shares and there is no requirement to obtain the approval of the Company, or of other holders of the Ordinary Shares, for a transfer of Ordinary Shares. (a)
The Ordinary Shares are, in general, freely transferable but the Directors may decline to register a transfer of Ordinary Shares upon notice to the transferee, within two months after the lodgement of a transfer with
the Company, in the following cases: (i)
a lien held by the Company; (ii)
in the case of a purported transfer to an infant or a person lawfully declared to be incapable for the time being of dealing with their affairs; or (iii)
in the case of a single transfer of shares which is in favour of more than four persons jointly. 
Ordinary Shares held in certificated form are transferable upon production to the Companys Registrars of the Original Share certificate and the usual form of stock transfer duly executed by the holder of the
shares. 
Shares held in uncertificated form are transferable in accordance with the rules or conditions imposed by the operator of the relevant system which enables title to the Ordinary Shares to be evidenced and transferred
without a written instrument and in accordance with the Companies Act 1990 (Uncertificated Securities) Regulations 1996. 
The rights attaching to Ordinary Shares remain with the transferor until the name of the transferee has been entered on the Register of Members of the Company. (b)
2009 Preference Shares are freely transferable provided that the minimum number of 2009 Preference Shares transferred to any one person is not less than 50,000.








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Exercise of Rights of Shares in Employees Share Schemes The AIB Approved Employees Profit Sharing Scheme 1998 and the Allied Irish Banks, p.l.c. Share Ownership Plan (UK) provide that voting rights in respect of shares
held in trust for employees who are participants in those schemes are, on a poll, to be exercised only in accordance with any directions in writing by the employees concerned to the Trustees of the relevant scheme. Deadlines for exercising Voting Rights Voting rights at general meetings of
the Company are exercised when the chairman puts the resolution at issue to the vote of the meeting. A vote decided under show of hands is taken forthwith. A vote taken on a poll for the election of the Chairman or on a question of adjournment is
also taken forthwith and a poll on any other question is taken either immediately, or at such time (not being more than thirty days from the date of the meeting at which the poll was demanded or directed) as the chairman of the meeting directs.
Where a person is appointed to vote for a shareholder as proxy, the instrument of appointment must be received by the Company not less than forty-eight hours before the time appointed for holding the meeting or adjourned meeting at which the
appointed proxy proposes to vote, or, in the case of a poll, not less than forty-eight hours before the time appointed for taking the poll. Rules Concerning
Amendment of the Companys Articles of Association As provided in the Companies Acts, the Company may, by special resolution, alter or add to its Articles
of Association. A resolution is a special resolution when it has been passed by not less than three-fourths of the votes cast by shareholders entitled to vote and voting in person or by proxy, at a general meeting at which not less than twenty-one
clear days notice specifying the intention to propose the resolution as a special resolution, has been duly given. A resolution may also be proposed and passed as a special resolution at a meeting of which less than twenty-one clear days
notice has been given if it is so agreed by a majority in number of the members having the right to attend and vote at any such meeting, being a majority together holding not less than ninety per cent in nominal value of the shares giving that
right. Rules Concerning the Appointment and Replacement of Directors of the Company 
Other than in the case of a casual vacancy, Directors are appointed on a resolution of the shareholders at a general meeting, usually the Annual General Meeting. 
No person, other than a Director retiring at a general meeting is eligible for appointment as a Director without a recommendation by the Directors for that persons appointment unless, not less than forty-two days
before the date of the general meeting, written notice by a shareholder, duly qualified to be present and vote at the meeting, of the intention to propose the person for appointment and notice in writing signed by the person to be proposed of
willingness to act, if so appointed, shall have been given to the Company. 
A shareholder may not propose himself or herself for appointment as a Director. 
The Directors have power to fill a casual vacancy or to appoint an additional Director (within the maximum number of Directors fixed by the Company in general meeting) and any Director so appointed holds office only
until the conclusion of the next Annual General Meeting following his appointment, when the Director concerned shall retire, but shall be eligible for reappointment at that meeting. 
One third of the Directors for the time being (or if their number is not three or a multiple of three, not less than one third), are obliged to retire from office at each Annual General Meeting on the basis of the
Directors who have been longest in office since their last appointment. While not obliged to do so, the Directors have, in recent years, adopted the practice of all (wishing to continue in office) offering themselves for re-election at the Annual
General Meeting. 
A person is disqualified from being a Director, and their office as a Director ipso facto vacated, in any of the following circumstances: 
if at any time the person has been adjudged bankrupt or has made any arrangement or composition with his or her creditors generally; 
if found to be mentally disordered in accordance with law; 
if the person be prohibited or restricted by law from being a Director; 
if, without prior leave of the Directors, he or she be absent from meetings of the Directors for six successive months (without an alternate attending) and the Directors resolve that his or her office be vacated on that
account; 
if, unless the Directors or a court otherwise determine, he or she be convicted of an indictable offence; 
except in the case of a Government Appointee, if he or she be requested, by resolution of the Directors, to resign his or her office as Director on foot of a unanimous resolution (excluding the vote of the Director
concerned) passed at a specially convened meeting at which every Director is present (or represented by an alternate) and of which not less than seven days written notice of the intention to move the resolution and specifying the grounds
therefore, has been given to the Director; 
except in the case of a Government Appointee, if he or she has reached an age specified by the Directors as being that at which that person may not be appointed a Director or, being already a Director, is required to
relinquish office and a Director who reaches the specified age continues in office until the last day of the year in which he or she reaches that age; or 
in the case of a Government Appointee, if removed from office by the Government Preference Shareholder pursuant to the Articles of Association.








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Rules Concerning the Appointment and Replacement of Directors of the Company (continued) 
In addition, the office of Director is vacated, subject to any right of appointment or reappointment under the Articles, if: 
not being a Director holding for a fixed term an executive office in his or her capacity as a Director, he or she resigns their office by a written notice given to the Company; or 
being the holder of an executive office other than for a fixed term, the Director ceases to hold such executive office on retirement or otherwise; or 
the Director tenders his or her resignation to the Directors and the Directors resolved to accept it; or 
he or she ceases to be a Director pursuant to any provision of the Articles. 
Notwithstanding anything in the Articles of Association or in any agreement between the Company and a Director, the Company may, by Ordinary Resolution of which extended notice has been given in accordance with the
Companies Acts, remove any Director before the expiry of his or her period of office. 
See note 63 to the consolidated financial statements regarding the power of the Minister for Finance to nominate such number of non executive directors equal to either (a) 25 per cent of the Directors when the
total number of Directors is 15 or less or (b) 4 Directors where the total number of Directors is 16, 17 or 18. The Powers of the Directors
Including in Relation to the Issuing or Buying Back by the Company of its Shares Under the Articles of Association, the business of the Company is to be managed
by the Directors who may exercise all the powers of the Company subject to the provisions of the Companies Acts, the Memorandum and Articles of Association of the Company and to any directions given by special resolution of a general meeting. The
Articles of Association further provide that the Directors may make such arrangement as may be thought fit for the management, organisation and administration of the Companys affairs including the appointment of such executive and
administrative officers, managers and other agents as they consider appropriate and delegate to such persons (with such powers of sub-delegation as the Directors shall deem fit) such functions, powers and duties as the Directors may deem requisite
or expedient. Pursuant to resolution of the shareholders, in accordance with the provisions of the Companies Acts, the Directors are unconditionally authorised
until 26 July 2016 to exercise all the powers of the Company to allot relevant securities up to the aggregate nominal amount of  6,892,692,445. By
such authority, the Directors may make offers or agreements which would, or might, require the allotment of such securities after 26 July 2016. Any treasury
shares for the time being held by the Company may, by decision of the Directors, be re-issued off market. Where treasury shares are re-issued for the purposes of the AIB Approved Employees Profit Sharing Scheme 1998, the Allied Irish Banks,
p.l.c. Share Ownership Plan (UK), the AIB Group Share Option Scheme or the AIB Group Performance Share Plan 2005, the minimum price at which a treasury share may be re-issued is the issue price as provided for in such a scheme. In all other
circumstances the minimum price shall be 95% of the Appropriate Price. The Appropriate Price is the average of the closing quotation prices of the Ordinary Shares for the five business days immediately preceding the day on which the
treasury share is re-issued, as published in the Irish Stock Exchange Daily Official List (or any successor publication thereto or any equivalent publication for securities admitted to trading on the Enterprise Securities Market). For any business
day on which there is no dealing on the Ordinary Shares on that Exchange, the minimum price will be the price equal to (i) the mid-point between the high and low market guide prices and for the Ordinary Shares as published in the Irish Stock
Exchange Daily Official List (or any successor publication thereto or any equivalent publication for securities admitted to trading on the Enterprise Securities Market); or (ii) if there is only one such market guide price so published, the
price so published. The maximum price at which a treasury share may be re-issued off-market is 120% of the Appropriate Price.








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Memorandum & Articles of Association A summary of the Memorandum & Articles of Association of Allied Irish Banks, p.l.c. is set out below. Objects and Registration Details Allied Irish Banks, p.l.c. (AIB)
is a public limited company that was incorporated as a limited company in 1966 and was subsequently re-registered as a public limited company in 1985. Objects and purposes are set out in its Memorandum of Association. The principal objects of AIB
are to carry on the business of banking in all or any of its branches and departments and to undertake all manner of financial services. Directors Any Director who is in any way, whether directly or indirectly, interested in a contract or arrangement with AIB must declare his/her interest at a meeting of the
Directors at which the question of entering into such contract/arrangement first arises, if his interest then exists, or in any other case at the first meeting of the Directors after he becomes so interested. The Articles of Association also require
that a Director may not vote in respect of any such contract or arrangement or any other proposal whatsoever in which he has a material interest. Nothing in the Articles of Association will restrict a Government Appointee from participating fully in
any meeting of the Directors or voting on any matter unless the Government Appointee has an interest in the matter which concerns him personally (for example, the fact that he or she was appointed by the Government Shareholder, the fact that a
Government Preference Shareholder or a Government Body may have an interest in the matter or the fact that the matter relates to a matter that requires the consent of the Government Preference Shareholder shall not be regarded as giving rise to such
an interest). Interests in shares or debentures or other securities of, or otherwise in or through, AIB are disregarded for the purpose. This prohibition on voting is disapplied in respect of resolutions concerning the following matters (amongst
others): 
where a Director is to be given security or indemnified in respect of money lent or obligations incurred by him for the benefit of AIB or any of its subsidiaries; 
the giving of security or indemnifying a third party in respect of a debt or obligation of AIB or any of its subsidiaries for which he himself has assumed responsibility in whole or in part under a guarantee or
indemnity or by the giving of security; 
any proposal concerning an offer of shares, debentures or securities of or by AIB or any of its subsidiaries in which a Director is interested as an underwriter or sub-underwriter; 
regarding any proposal concerning any other company in which a Director is interested, directly or indirectly, provided that he does not hold or is not beneficially interested in 1% or more of any class of the equity
share capital of that company (or of any third company through which his interest is derived) or of the voting rights available to members of the relevant company (any such interest being deemed for the purposes of this Article to be a material
interest in all circumstances); 
any proposal concerning the adoption, modification or operation of any superannuation fund or retirement benefits plan under which he might benefit and which has been approved by or is subject to and conditional upon
approval by the Revenue Commissioners; and 
relating to any other arrangement for the benefit of employees of AIB or any of its subsidiaries under which a Director benefits or stands to benefit in a similar manner as the employees concerned and which does not
accord to any Director as such any privilege or advantage not generally accorded to the employees to whom the arrangement relates. The remuneration of
the Directors is determined from time to time by AIB in General Meeting. Any Director while holding the office of Chairman or Deputy Chairman is entitled to such additional remuneration as may be determined from time to time by the Directors.
Remuneration granted may be by way of fees, salary, commission, participation in profits, or all or any of such modes, or by such other mode as AIB may from time to time consider appropriate. All remuneration fixed or granted accrues from day to
day. Any Director who serves on any Committee or devotes special attention to the business of the Company or who otherwise performs services which in the opinion of the Directors are outside the scope of the ordinary duties of a Director may be paid
such extra remuneration by way of salary, commission, participation in profits or otherwise as the Directors may determine. A Director holding an executive office shall receive such remuneration, whether in addition to or in substitution for his
ordinary remuneration as a Director and whether by way of salary, commission, participation in profits or otherwise or partly in one way and partly in another, as the Directors may determine. The Directors may exercise all the borrowing powers of AIB and the power to give mortgages and charges over its assets and to issue debentures, debenture stock and other
securities whether outright or as security for any debts or liabilities of AIB or any third party. Under the Articles, retirement of Directors, other than
Government Appointees, is by rotation at each Annual General Meeting and one-third of the Directors for the time being, or, if their number is not three or a multiple of three, then not less than one-third shall retire from office at each Annual
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Rights and Restrictions Attaching to Shares The authorised share capital of AIB is  11,092,752,297 divided into
702,000,000,000 Ordinary Shares, 3,500,000,000 2009 Preference Shares and 403,775,229,679 Deferred Shares. Subject to the Companies Acts and to any special rights of existing shares, any share in the Company may be issued with such preferred,
deferred or other special rights or restrictions and unless otherwise determined by the Directors in relation to any particular preference shares prior to allotment, preference shares may be issued on the terms and in such manner as the Company may
by Special Resolution determine. Rights and Obligations of Ordinary Shares The following rights attach to the Ordinary Shares: 
The right to receive duly declared dividends, in cash or, where offered by the Directors, by allotment of additional Ordinary Shares. 
The right to attend and speak, in person or by proxy, at general meetings of the Company. 
The right to vote, in person or by proxy, at general meetings of the Company having, in a vote taken by show of hands, one vote, and, on a poll, a vote for each Ordinary Share held. 
The right to appoint a proxy, in the required form, to attend and/or vote at general meetings of the Company. 
The right to receive, (by post or electronically), twenty-one days at least before the Annual General Meeting, a copy of the Directors and Auditors reports accompanied by (a) copies of the balance
sheet, profit and loss account and other documents required by the Companies Acts to be annexed to the balance sheet or (b) such summary financial statements as may be permitted by the Companies Acts. 
The right to receive notice of general meetings of the Company. 
In a winding-up of the Company, and subject to payments of amounts due to creditors and to holders of shares ranking in priority to the Ordinary Shares, repayment of the capital paid up on the Ordinary Shares and a
proportionate part of any surplus from the realisation of the assets of the Company. There is attached to the Ordinary Shares an obligation for the
holder, when served with a notice from the Directors requiring the holder to do so, to inform the Company in writing not more than 14 days after service of such notice, of the capacity in which the shareholder holds any share of the Company and if
such shareholder holds any share other than as beneficial owner to furnish in writing, so far as it is within the shareholders knowledge, the name and address of the person on whose behalf the shareholder holds such share or, if the name or
address of such person is not forthcoming, such particulars as will enable or assist in the identification of such person and the nature of the interest of such person in such share. Where the shareholder served with such notice (or any person named
or identified by a shareholder on foot of such notice), fails to furnish the Company with the information required within the time specified, the shareholder shall not be entitled to attend meetings of the Company, nor to exercise the voting rights
attached to such share, and, if the shareholder holds 0.25% or more of the issued Ordinary Shares, the Directors will be entitled to withhold payment of any dividend payable on such shares and the shareholder will not be entitled to transfer such
shares except by sale through a Stock Exchange to a bona fide unconnected third party. Such sanctions will cease to apply after not more than seven days from the earlier of receipt by the Company of notice that the member has sold the shares to an
unconnected third party or due compliance, to the satisfaction of the Company, with the notice served as provided for above. Rights and Obligations of 2009
Preference Shares The following rights attach to the 2009 Preference Shares: 
The right to receive a non-cumulative cash dividend at a fixed rate of 8% of the subscription price per annum payable annually, at the discretion of the Directors, in arrears on each anniversary of the date of the issue
of the shares. 
The right to receive this dividend ranks (a)
pari passu with other shares constituting core tier 1 capital (excluding the Ordinary Shares); (b)
junior to certain other preferred securities; and (c)
in priority to the Ordinary Shares. 
In the event that a dividend on 2009 Preference Shares is not paid in cash, the right to receive a bonus issue of Ordinary Shares (Bonus Shares) calculated by dividing the amount of the unpaid dividend by
the average price of an Ordinary Share over the 30 trading days prior to the dividend payment date, subject to an adjustment in circumstances where the Bonus Shares are not issued on the dividend payment date. 
Where the issue of Bonus Shares is deferred, the holders of 2009 Preference Shares are granted voting rights at general meetings of the Company equivalent to the voting rights that would have attached to the Bonus
Shares if they had been issued on the relevant dividend payment date (Provisional Voting Rights), provided: (a)
these shall not be exercisable against any Directors resolution for the issue of core tier 1 securities to redeem or purchase all or any of the 2009 Preference Shares; or (b)
on any resolution on any action by the Company in relation to Preferred Securities as defined in the Memorandum and Articles of Association.








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
The right to receive copies of the circulars to shareholders but not to attend, speak, vote at general meetings save while held by a Government Body and then only in the following circumstances and the following manner: (a)
on a resolution seeking approval for a change of control of the Company or a sale of all or substantially all of its business; and (b)
on a resolution to appoint, re-elect or remove directors. 
Subject as provided below, on either of the foregoing resolutions (and while held by a Government Body) the right to cast a number of votes equal to 25% of all votes capable of being cast by shareholders (including the
2009 Preference Shareholder) on a poll at a general meeting of the Company. 
If the NPRFC and Government Entities, through their holding of Ordinary Shares (or other securities issued in future), control 25% or more of the total voting rights, then the 2009 Preference Shares will carry no voting
rights. If those entities, through their holding of Ordinary Shares (or other securities issued in future), control less than 25% of the total voting rights, then, in respect of resolutions to appoint, re-elect or remove directors and any resolution
concerning a proposed change of control of AIB, the 2009 Preference Shares carry the right to top-up their total voting rights to 25% of the total voting rights, including the votes attaching to the 2009 Preference Shares. 
In a winding up of the Company or a return of capital by the Company (other than a redemption or purchase of shares) the right to receive a repayment of the capital (including premium) paid up, rank as follows: (a)
pari passu with the repayment of the paid up nominal value on Ordinary Shares; (b)
in priority to the payment of any further amount on Ordinary Shares; and (c)
junior to the repayment of capital on all other classes of shares that rank ahead of the Ordinary Shares. 
The right while held by a Government Body to appoint directly either (a) 25 per cent of the Directors where the total number of Directors is 15 or less or (b) 4 Directors where the total number of
Directors is 16, 17 or 18 (in either case including any Directors nominated by the Minister pursuant to the Government Guarantee Schemes). Redemption of 2009 Preference Shares 
will not be redeemable at the option of the holder. 
may be redeemed or purchased, in whole or in part, at any time subject to the consent of Central Bank and that the redemption or purchase is made up of distributable profit and/or the proceeds of an issue of shares
constituting core tier 1 capital. 
redemption price for the first five years shall be  1.00 per 2009 Preference Share, being the original subscription
price including premium of each 2009 Preference Share. Thereafter, the redemption price of each 2009 Preference Share will be  1.25, including premium. 
shall be required to redeem all of the 2009 Preference Shares if there are less than 35,000,000 2009 Preference Shares in issue, subject to the Central Banks consent. 
may redeem or purchase 2009 Preference Shares which are held by a Government Entity without being required to redeem or purchase any 2009 Preference Shares held by another person. 
on redemption or purchase of 2009 Preference Shares, the Company will be required to issue any outstanding Bonus Shares. Rights and Obligations of the Deferred Shares The Deferred Shares have no
voting or dividend rights. On a winding-up of the Company or other return of capital (other than a redemption or purchase of shares of any class in the capital of the Company), holders of Deferred Shares have the right to receive the nominal value
of those shares only after the holders of Ordinary Shares have received payment of such amount as is paid up or credited as paid up in respect of those Ordinary Shares plus
 10 million per share. The Deferred Shares are not transferable,
other than with the prior written consent of the Directors. The Company has, however, the right at any time, without the consent of the holder, to instruct the Company Secretary to acquire the Deferred Shares for nil consideration and the Company
acquired and cancelled 395,759,506,824 Deferred Shares on 27 July 2011 resulting from the renominalisation of the ordinary share capital of the Company from
 0.32 each to  0.01 each following the passing of a Special Resolution to this effect on 26 July 2011. Dividend Rights Under Irish law, and under the Articles, dividends are
payable only out of income available for distribution. Holders of the shares of the Company are entitled to receive such dividends as may be declared by the Company by Ordinary Resolution provided that the dividend cannot exceed the amount
recommended by the Directors. Subject to any preferential or other special rights for the time being attached to any class of shares, the income to be distributed
by way of dividend is to be applied in payment of dividends upon the shares of the Company in proportion to the amounts paid up thereon otherwise than in advance of calls. The Company may pay such interim dividends as appear to the Directors to be justified by the income of the Company available for distribution.








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Under Article 46 the Company may by Ordinary Resolution convert any paid up shares into stock and re-convert any stock into
paid-up shares of any denomination. Any dividend which has remained unclaimed for 12 years from the date of its declaration may be forfeited and cease to remain owing by the Company. Voting Rights Voting at any General Meeting is by a show of hands unless a
poll is properly demanded. On a show of hands, every member who is present in person or by proxy has one vote regardless of the number of shares held by him. On a poll, every member who is present in person or by proxy has one vote for each share of
which he is the holder. A poll may be demanded by the Chairman of the meeting or by at least five members having the right to vote at the meeting or by a member or members representing not less than one-tenth of the total voting rights of all the
members having the right to vote at the meeting or by a member or members holding shares in the Company conferring a right to vote at the meeting, being shares on which an aggregate sum has been paid up equal to not less than one-tenth of the total
sum paid up on all the shares conferring that right. All business is deemed special that is transacted at an Extraordinary General Meeting. All business that is
transacted at an Annual General Meeting is also deemed special with the exception of declaring a dividend, receiving the accounts, statements of financial position and reports of the Directors and Auditors, electing Directors in the place of those
retiring, voting additional remuneration for the Directors, appointing Auditors and fixing of the remuneration of the Auditors. No business may be transacted at any
General Meeting unless a quorum is present at the time when the meeting proceeds to business. Ten members present in person and entitled to vote at such meeting constitutes a quorum. In the case of an Annual General Meeting or of a meeting for the
passing of a Special Resolution or the appointment of a Director, twenty-one clear days notice at the least, and in any other case fourteen clear days notice at the least, needs to be given in writing in the manner provided for in the
Articles to all the members (other than those who, under the provisions of the Articles or the conditions of issue of the shares held by them, are not entitled to receive the notice) and to the Auditors for the time being of the Company. Variation of Class Rights The rights, privileges, limitations or restrictions
attached to the 2009 Preference Shares may be varied, altered or abrogated, either whilst the Company is a going concern or during or in contemplation of a winding up, with the written consent of the holders of not less than 662⁄3% in nominal value of such class of shares or with the sanction of a resolution passed at a class meeting of holders of such classes of shares provided that the
holders of not less than 662⁄3% in nominal value of such class of shares vote in favour of such resolution. Article 7 provides that whenever the capital of the Company is divided into different classes of shares, the special rights attached to any class may, subject to the
provisions of the Companies Acts 1963-2009 and subject as otherwise provided in the Articles be varied or abrogated, either whilst the Company is a going concern or during or in contemplation of a winding up, with the sanction of a Special
Resolution passed at a Class Meeting of the holders of the shares of the class but not otherwise. Convening of General Meetings AIB must hold a General Meeting in each year as its Annual General Meeting in addition to any other meetings in that year and no more than fifteen months may elapse
between the date of one Annual General Meeting and that of the next. The Annual General Meeting will be held at such time and place as the Directors determine. All General Meetings other than Annual General Meetings, are called Extraordinary General
Meetings. The Directors may at any time call an Extraordinary General Meeting. Extraordinary General Meetings shall also be convened by the Directors on the requisition of members holding, at the date of the requisition, not less than one-tenth of
the paid up capital carrying the right to vote at General Meetings and in default of the Directors within twenty one clear days, convening such a meeting to be held within two months, the requisitionists (or more then half of them) may but only
within three months themselves convene a meeting. Disclosure of Share Ownership Article 13(b) provides that the Directors may by notice in writing sent to any member require such member to inform the Company in writing not more than 14 days after
service of the notice of the capacity in which such member holds any share otherwise than as beneficial owner to furnish in writing, so far as it is within the members knowledge, the name and address of the person on whose behalf the member
holds such share or, such particulars as will enable or assist in the identification of such person and the nature of the interest of such person in such shares. Failure to respond to such notice within the prescribed period of time will result in
the member not being entitled to attend meetings of the Company not to exercise the voting rights attached to such share, and, if the member holds 0.25% or more of the issued Ordinary shares of the Company, the Directors are entitled to withhold
payment of any dividend payable on such shares and the member shall not be entitled to transfer such shares except by sale through a Stock Exchange to a bona fide unconnected third party.








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Material Contracts The following
are all the contracts (not being contracts entered into in the ordinary course of business) that have been entered into by members of the AIB Group: (i) within two years immediately preceding the date of this document which are, or may be,
material to the Group; or (ii) at any time and contain obligations or entitlements which are, or may be, material to the Group as at the date of this document:  1
The Credit Institutions (Eligible Liabilities Guarantee) Scheme 2009 and the Eligible Liabilities Guarantee Scheme Agreements. On 20 January 2010, the Company and its subsidiaries, AIB Group (UK) p.l.c., AIB Bank
(CI) Limited and Allied Irish Banks North America Inc. each executed an Eligible Liabilities Guarantee Scheme Agreement and on 21 January 2010 were each issued with a Participating Institution Certificate under the Eligible Liabilities
Guarantee Scheme. EBS and AIB International Savings Limited (formerly Anglo Irish Bank Corporation (International) plc and which is an Isle of Man company that was acquired by AIB in February 2011), both also hold a Participating Institution
Certificate under the Eligible Liabilities Guarantee Scheme.  2
Arrangements in relation to The National Pensions Reserve Fund Commission (NPRFC) (i) The
Subscription Agreement (a)
Pursuant to the terms of the Subscription Agreement between AIB, the Minster for Finance (the Minister) and the NPRFC dated 13 May 2009, AIB agreed to issue the 2009 Preference Shares and the 2009
Warrants to the NPRFC at an aggregate subscription price of  3.5 billion. (b)
AIB gave the NPRFC and the Minster certain warranties relating to the business and operation of the Group. These warranties are considered standard for this type of agreement and cover issues such as the Companys
issued share capital, accuracy and completeness of certain information, accuracy of audited financial statements, payment of taxes, possession of all material licences and absence of material litigation. (c)
AIB provided various undertakings to the NPRFC and the Minster, including agreeing to commit to the Minsters Bank Customer Package. This includes, inter alia, obligations on AIB to: A
increase lending capacity to small to medium-sized enterprises by 10 per cent. and provide an additional 30 per cent capacity for lending to first-time buyers during each quarter of the financial year when
compared to the corresponding quarter in the year commencing 1 January 2008; B
establish a  100 million fund to support environmentally friendly investment and innovations in clean energy; C
comply with the Code of Conduct for Business Lending to Small and Medium Enterprises and the Code of Conduct for Mortgage Arrears published by the Central Bank; D
make every effort to avoid repossessions and, in any case, not commence court proceedings for the repossession of a principal private residence within 12 months of arrears appearing, where the customer maintains contact
and co-operates reasonably with AIB; E
fund and co-operate with an Independent Review of Credit Availability; and F
work closely with the IDA Ireland, Enterprise Ireland and with other Irish state agencies to ensure the supply of appropriate finance to contractors engaged on major projects sponsored by those agencies. AIB also agreed to submit a restructuring plan to the Minster, including an assessment of AIBs business models viability and details of how AIB intends to repay the State aid provided. This restructuring
plan, which was prepared by the Group, has now been submitted to the European Commission by the Government. In addition, AIB agreed to accept restrictions on the amount of remuneration Directors would receive. AIB also agreed that, on request from the NPRFC, it would undertake all necessary acts in order to facilitate the placing, offering to the public or admission to listing of the 2009 Preference Shares or any Ordinary
Shares acquired as a result of the 2009 Warrants or the 2009 Preference Shares. Under the terms of the Subscription Agreement, AIB must consult with the Minister or his nominee prior to taking any material action which may be reasonably expected to have a public interest dimension. (d)
On 13 May 2009, the NPRFC paid to AIB  3.5 billion (less an arrangement fee of
 30 million paid by AIB to the NPRFC) in respect of the issue to it of the 2009 Preference Shares and the 2009 Warrants. (e)
AIB undertook in the Subscription Agreement that application would be made in due course for the Warrant Shares and any Bonus Shares to be admitted to trading on a regulated market. (f)
In addition to agreeing to allow the Government Entities to make use of any public offer prospectus issued by the Company for the purposes of placing such Ordinary Shares with investors, the Company also undertook to
co-operate in the preparation and issue of a public offer prospectus where this is required for the purposes of an offering to the public, a placing or listing of the 2009 Preference Shares or any Ordinary Shares acquired as a result of holding 2009
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(ii) 2010 Placing Agreement (a)
Pursuant to the terms of the Placing Agreement between the Minister, the NPRFC, the National Treasury Management Agency (NTMA) and AIB, dated 23 December 2010, AIB agreed to issue 675,107,845 new
Ordinary Shares to the NPRFC at an aggregate subscription price of  3,818,438,297. (b)
To the extent that the NPRFC subscription for these shares would result in it holding more than 49.9% of the Ordinary Shares in issue, CNV Shares were to be allotted to the NPRFC so that, following such allotment, the
NPRFC did not acquire more than 49.9% of the Ordinary Shares then in issue. In April 2011, AIB converted into ordinary shares on a one-for-one basis the 10,489,899,564 CNV Shares issued to the NPRFC in connection with the 2010 Placing Agreement,
following completion of the disposal of AIBs interests in BZWBK. (c)
The obligations of the Minister, the NPRFC and the NTMA were conditional on AIB having complied, and continuing to comply, with letters from the Minister dated 13 and 22 December 2010, stating that the provision of
further state funding to AIB was conditional on the Boards decision not to pay any bonuses to staff no matter when they may have been earned, since AIB could not be in a position to pay without state support, past, present and future save that
nothing in the Agreement was to prevent AIB meeting its obligations on foot of a Court Order. (d)
The cancellation of the 294,251,819 warrants over new Ordinary Shares held by the NPRFC in return for the payment to it by AIB of approximately
 52 million; (e)
AIB gave the Minister, the NPRFC and the NTMA certain warranties relating to the business and operation of the Group. These warranties are considered standard for this kind of agreement and cover issues such as the
Companys issued share capital, accuracy and completeness of certain information, accuracy of audited financial statements, payment of taxes, possession of all material licenses, absence of material litigation and absence of breach of material
change of control provisions. (f)
AIB entered into various covenants with the Minister, the NPRFC, the NTMA, the National Asset Management Agency or any other state entity to use all reasonable efforts to comply, and procure compliance by the Group,
with various commitments including: A
Meeting a lending target of  3 billion per annum for new or increased credit facilities to SMEs in each of the two twelve
month periods commencing on 1 January 2011 and 2012. B
Providing  20 million for seed capital to Enterprise Ireland supported ventures and
 100 million for environmental, clean energy and innovation projects (in addition to the commitments under the Subscription Agreement). C
Working with Enterprise Ireland and the Irish Bankers Federation to develop sectoral expertise in the modern growth sectors of the economy, and with Enterprise Ireland to develop a range of banking services to meet the
needs of Irish SMEs trading internationally. D
Taking actions, agreed with the Minister, to develop new credit products in areas where cash flow, rather than property or assets, is the basis for business lending. (g)
AIB also agreed to co-operate fully with the Minster and the European Commission in connection with the Commissions assessment of the Groups restructuring plan under EU State aid rules and to implement fully
the final restructuring plan when approved by the NTMA and the Commission. (h)
AIB repeated and extended undertakings in the Subscription Agreement relating to matters concerning the remuneration of its directors, senior executives and employees. (i)
AIB undertook various obligations in respect of the CNV Shares, relating to the issue of securities, the modification of rights attaching to securities and the transferability of the CNV Shares. (iii) EBS Acquisition Agreement Pursuant to the terms
of an Acquisition Agreement between the Minister, the NTMA, EBS Building Society and AIB, dated 26 May 2011, AIB agreed to acquire the entire issued share capital of EBS. The EBS merger completed on 1 July 2011 (following its conversion
into a private company and receipt of all requisite regulatory approvals) and was effected pursuant to an acquisition conversion scheme mechanism under Part XI of the Building Societies Act 1989 (as amended) whereby EBS was first demutualised by
conversion from a building society into a private limited company, called EBS Limited, the entire issued share capital of which was held by the Minister prior to the acquisition of that share capital by AIB. As AIB and EBS respectively are
substantially owned by the State, the consideration payable by AIB for the EBS Merger was a nominal cash payment of  1.00. (iv) 2011 Placing Agreement, Capital Contribution and Ministers Letter (a)
Pursuant to the terms of the Placing Agreement between the Minister, the NPRFC, the NTMA and AIB, dated 1 July 2011, AIB agreed to issue 500,000,000,000 new Ordinary Shares to the NPRFC at an aggregate subscription
price of  5 billion. On 28 July 2011, the Minister and the NPRFC agreed to make capital contributions of 
2,283,146,860 and  3,770,970,659 respectively to AIB for no consideration and AIB is not legally obliged to repay the capital contributions. The capital contributions were made in order to enable AIB
to meet its regulatory capital requirements. (b)
The Company agreed to give certain covenants and undertakings to the Minister, the NTMA and the NPRFC, including in relation to its reserves, dividends, disclosure of information, matters of public interest, use of
proceeds and future material transactions, together with additional covenants and undertakings in relation to the availability of credit, the Groups








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restructuring plan, corporate governance and remuneration. In addition, the Company gave certain representations and warranties and indemnities to the Minister, the NTMA and the NPRFC and the
liability of the Company in respect of any breach of those representations, warranties and indemnities is unlimited as to time and amount. (c)
The continued provision of State funding and support to AIB is dependent on enforcement by AIB of a wide restriction on payment of employment bonuses by the Group, details of which are contained in a letter from the
Minister to AIB dated 25 July 2011. The Ministers Letter contains undertakings in relation to measures to promote the availability of credit, AIBs restructuring plan, related party transactions, corporate governance and
remuneration and fees payable to directors, senior executives, employees and service providers of AIB. (v) Contingent Capital Note
Purchase Agreement (a)
Pursuant to the terms of the Note Purchase Agreement between the Minister and AIB, dated 26 July 2011, AIB agreed to issue
 1.6 billion of contingent tier 2 capital notes to the Minister, issued at par with a five year and one day maturity, with an aggregated principal amount
of  1.6 billion. (b)
The Contingent Capital Notes will convert mandatorily in their entirety into Ordinary Shares in the event that the core tier 1 capital ratio of AIB falls below 8.25% or (following implementation of the Capital
Requirements Directive IV in Ireland), AIBs common equity tier 1 ratio falls below 8.25% or, if the Central Bank, in its sole discretion, notifies AIB that it has determined that the Groups financial and solvency condition is
deteriorating in such a way that a fall below the ratios described above is likely to occur in the short term and AIB is incapable of restoring the Groups capital ratio to a level above 8.25% during the following 90 days. The Contingent
Capital Notes will also convert immediately and mandatorily into Ordinary Shares in the event that a non-viability event occurs (including in the event of the Group becoming insolvent, bankrupt, unable to pay its debts as they fall due, ceases to
carry on its business or fails to meet minimum capital adequacy requirements). (c)
Following a conversion event, the Contingent Capital Notes will be immediately converted into a fixed number of Ordinary Shares that is determined by dividing the principal amount of each Contingent Capital Note by the
conversion price of  0.01 per Ordinary Share. The Contingent Capital Notes also include certain anti-dilution adjustments. (d)
The Contingent Capital Notes carry a fixed annual mandatory interest rate of 10% of the principal amount. The Minister may, where it remains the holder of 100 per cent. of the Contingent Capital Notes, in order to
facilitate the sale of the Contingent Capital Notes to third party investors, at any time (but becoming effective only from the date of such sale being completed and settled) increase the interest rate to a new level determined by an independent
remarketing agent nominated by the Minister, but not exceeding 18 per cent. per annum. In addition, AIB will provide, at the request of the Minister, sufficient disclosure to allow for the Contingent Capital Notes to be listed and to be sold to
third party investors. AIB will have the option, prior to any such sale of the Contingent Capital Notes being completed and settled, to source third party investors at a potentially lower interest rate, but only if it has sourced sufficient
investors to purchase an amount equal to the principal amount paid by the Minister for the Contingent Capital Notes on overall better terms. The Minister will have discretion as to whether or not to sell to any such investors. Admission of the
Contingent Capital Notes to the Official List of the Irish Stock Exchange and to trading on its Global Exchange Market, an exchange-regulated market, occurred on 27 October 2011. (e)
The Contingent Capital Notes constitute direct, unsecured and subordinated obligations of the Group and rank junior to unsubordinated obligations of the Group and pari passu without any preference among themselves and
equally with all other dated subordinated obligations of the Group which rank or are expressed to rank equally with the Contingent Capital Notes (if any). The Contingent Capital Notes rank senior to other obligations of the Group that are expressed
to rank junior to the Contingent Capital Notes. (vi) Relationship Framework In order to comply with contractual commitments imposed on AIB in connection with its recapitalisation by the Irish State and with the requirements of EU
state aid applicable in respect of that recapitalisation, a relationship framework was entered into between the Minister and AIB in March 2012. This provides the framework under which the relationship between the Minister and AIB is governed. Under
the relationship framework, the authority and responsibility for strategy and commercial policies (including business plans and budgets) and conducting AIBs day-to-day operations rest with the Board of AIB and its management team. However, the
Board is required to obtain the prior written consent of the Minister, or to consult with the Minister, in respect of certain material matters, such as material disposals.








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Reporting currency and exchange rates AIB Group publishes consolidated financial statements in euro (). In this
Annual Financial Report, references to US dollars, dollars, US$, cents or ¢ are to United States currency, references to EUR, euro,  or c are to euro currency, references to sterling or Stg£ are to British currency, references to zloty, PLN or zl are to
Polish currency and references to Yen are to Japanese currency. The following table shows, for the periods and dates indicated, certain information
regarding the noon buying rate, expressed in US dollars per euro.  Period    end(1)



Average rate(2)




High




LowYear ended 31 December 2008

1.3919




1.4688





1.6010





1.2446Year ended 31 December 2009

1.4332




1.3936





1.5100





1.2547Year ended 31 December 2010

1.3269




1.3302





1.4536





1.1959Year ended 31 December 2011

1.2973




1.3946





1.4875





1.2926Year ended 31 December 2012

1.3186




1.2921





1.3463





1.2062  (1)
The noon buying rate at such dates differed from the rates used in the preparation of AIB Groups consolidated financial statements, which were US$ 1.3917, US$ 1.4406 US$ 1.3362, US$ 1.2939 and US$ 1.3194 to  1.00 at 31 December 2008, 2009, 2010, 2011 and 2012 respectively. (2)
The average rate for each period is the average of the noon buying rates on the last day of each month during that period. On 19 April 2013 the noon buying rate was  1.00 = US$1.3066 The accounting policy in respect of the translation of gains and losses arising in foreign locations is set out on page 198. Details of the exchange rates used in the
preparation of the consolidated financial statements are set out in note 67 of this report.








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Offer and listing details Trading market for Ordinary shares of AIB 0n 26 January, 2011 AIB ordinary
shares commenced trading on the Enterprise Securities Market (ESM) of the Irish Stock Exchange (ISE). This followed a direction to AIB by the Irish High Court on 23 December 2010, under the Credit Institutions
(Stabilisation) Act 2010, to apply to cancel its listing of ordinary shares on the Main Securities Market of the ISE (Irish Main Market Delisting) and to apply for admission to trading on the ESM of the ISE. The High Court also directed AIB to apply to cancel the admission of its ordinary shares to the Official List maintained by the UK Financial Services Authority and to
cancel trading on the main market of the London Stock Exchange (UK Delisting). AIB traded on the New York Stock Exchange (NYSE) in the form
of American Depositary Shares (ADS). Each ADS, which comprised 10 ordinary shares, traded under the symbol AIB and was evidenced by an American Depositary Receipt (ADR). On 25 August AIB delisted from the
NYSE, from which time AIBs ADSs were no longer traded on the NYSE. At 31 December 2012, AIB had outstanding 517,117,096,249 ordinary shares of  0.01 each, of which 35,680,114 were held as Treasury Shares (note 47). At that date, outstanding ADSs amounting to 27,072,592, evidenced by ADRs, represented
less than 0.1% of total outstanding ordinary shares (see page 397 for further information). The following table sets forth the high and low sales prices of the
ordinary shares during the periods indicated, based on midmarket prices at close of business on the Irish Stock Exchange and the high and low sales prices for ADS, as reported on the NYSE composite tape.  Ordinary        shares(1)


American Depositary Shares(2)High


Low


High


Low(Euro)


(Dollars)Year ended 31 December2008


15.98



1.65



47.14



4.592009


3.37



0.27



9.84



0.762010


1.79



0.27



4.95



0.832011


0.33



0.04



4.48



0.412012


0.14



0.05







Calendar year2011First quarter


0.31



0.19



4.48



2.40Second quarter


0.33



0.14



4.34



2.05Third quarter


0.14



0.04



2.13



0.46Fourth quarter


0.10



0.04







2012First quarter


0.14



0.06







Second quarter


0.09



0.06







Third quarter


0.07



0.05







Fourth quarter


0.06



0.05







  (1)
On 26 July 2011, the nominal value of each ordinary share was reduced from  0.32 to
 0.01 per share. (2)
An American Depositary Share (ADS) represented two ordinary shares up to 22 February 2011. On 23 February 2011, AIB changed the ratio whereby one ADS represents ten ordinary shares. Bonus Issue On 30 April 2012, Allied Irish Banks
p.l.c., announced that it was obliged under its Articles of Association to issue Ordinary Shares by way of bonus issue to the NPRFC as a result of the non payment of the annual cash dividend payable on the 2009 Preference Shares on 13 May 2012.
3,623,969,972 ordinary shares were issued and allotted to the NPRFC on 14 May 2012.








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American Depositary Receipts The
Companys listing of the ordinary shares, in the form of ADSs, was obtained on the NYSE effective 28 November 1990. Each ADS, which comprised two ordinary shares, traded under the symbol AIB and is evidenced by an ADR. The ADR
depositary is The Bank of New York Mellon (the Depositary). On 7 February 2011, AIB announced its intention to change the ratio of one ADS representing two ordinary shares to one ADS representing ten ordinary shares. The effective
date of this change was 23 February 2011. On 4 August 2011, AIB announced that its Board of Directors had resolved to delist its ADSs, each representing
ten ordinary shares, par value  0.01 per share, from the NYSE, terminate the deposit agreement governing the ADSs (the Deposit Agreement)
with the Depositary and, in due course, terminate the registration of AIBs securities with the US Securities and Exchange Commission (the SEC) under the US Securities Exchange Act of 1934 (the Exchange Act), in each
case after the completion of the required legal steps. The Board of Directors made the decision in light of the increase in the Irish Governments shareholding (through the NPRFC) to 99.8% on 27 July 2011, and the savings in costs and
administrative efforts that would result from the delisting and any subsequent deregistration under the Exchange Act. AIB filed the related Form 25 with the SEC on
15 August 2011. The delisting became effective at the close of business on 25 August 2011, from which time AIBs ADSs were no longer traded on the NYSE. On 10 October 2011, AIB terminated the ADS facility by terminating the ADS
deposit agreement between AIB and the Depositary. In April 2012, the Depositary commenced the sale of the ordinary shares underlying the ADSs on the ESM. Because of
the limited liquidity in the ordinary shares on the ESM, this disposal process has extended over a significant period and is continuing. AIB has not arranged for
listing and/or registration on another US national securities exchange or for quotation of its securities in a US quotation medium, but expects that its ordinary shares will continue to trade on the ESM of the ISE. Fees incurred in Past Annual Period There were no NYSE listing fees paid in
2012 as AIB delisted in 2011.








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Taxation This is a summary of the principal tax consequences for Irish resident individual holders and Eligible United States (US) Holders, as defined below, of AIB
Ordinary Shares or American Depositary Shares (ADSs) representing such Ordinary Shares, held as capital assets. It also covers Irish Dividend Withholding Tax (DWT) in general. It is not a comprehensive analysis of all
potential tax consequences and does not cover all categories of investors. Investors are advised to consult their own tax advisors in relation to the tax consequences of the purchase, ownership and disposal of AIB Ordinary Shares or ADSs, including
any foreign, state or local tax law. Underlying this summary is the Double Taxation Convention between Ireland and the US (the Tax Treaty) and the tax
laws, judicial decisions, regulations and administrative rulings and practices of Ireland and the US currently in effect, which are subject to change at any time. Irish Dividend Withholding Tax (DWT) - General In general, DWT is
deducted from dividends paid by Irish resident companies at the standard rate of income tax (currently 20%). Certain classes of shareholders are exempt from DWT
provided they return a properly completed declaration (certified as required) to AIBs Registrar, prior to the relevant dividend payment record date. Potentially-exempt shareholders include Irish resident companies, pension schemes, charities and certain non-resident persons. For a full exemption listing see the Irish
Revenue website http://www.revenue.ie/en/tax/dwt/exemptions.html Declaration forms to claim exemption may be obtained either from AIBs
Registrar at: Computershare Investor Services (Ireland) Ltd, Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland. Telephone: +353-1-2475411. Facsimile: +353-1-2163151. Email: web.queries@computershare.ie or from
the Irish Revenue Commissioners at: Dividend Withholding Tax Unit, Collector Generals Division, Government Offices, Nenagh, Co. Tipperary,
Ireland. Telephone: +353-67-63400. Facsimile: +353-67-33822. Email: infodwt@revenue.ie Website:
http://www.revenue.ie/en/tax/dwt/index.html Taxation of Irish Resident Individual Shareholders: Taxation of Dividends (i) Irish Income Tax and Dividend Withholding
Tax Credit Shareholders who are individuals are liable to Irish income tax at their marginal rate on the amount of the dividend before deduction
of DWT, and the DWT is available either for offset against the income tax liability, or for repayment, where it exceeds the total income tax liability. Such shareholders will normally also be liable to PRSI contribution (if regarded as
self-employed or a modified PRSI rate payer) and to the Universal Social Charge. All shareholders will be liable to PRSI contribution from 1 January 2014. (ii) Back-up Withholding Tax An Irish resident holder of ADSs
is subject to US withholding tax at the rate of 15% with respect to dividends paid on ADSs or the proceeds of sale of ADSs. Unless the holder has provided to the withholding agent the applicable completed Form W-8 (Certificate of Foreign
Status) the dividends or the proceeds of sale of the ADSs may be subject to US back-up withholding tax which will increase the total withholding tax to 28%. Irish Capital Gains Tax When shares are disposed of a capital gain may
result if the sales proceeds less selling costs are greater than the base cost of the shares sold and allowable deductions. Capital gains tax is charged at 33% on chargeable gains arising on disposals on or after 6 December 2012 (previously
30%). Stamp Duty The Irish stamp duty implications of transactions
in shares or ADSs are the same as for Eligible US Holders. See Irish Stamp Duty in the Taxation of Eligible US Holders section.








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Taxation of a gift or an inheritance Capital acquisitions tax (CAT), comprising gift tax and inheritance tax, is charged in Ireland where the value of the aggregate taxable gifts and inheritances
received by an individual on or after 5 December 1991 exceeds the tax free threshold applicable. The tax free threshold applicable is determined by the relationship between the parties. From 6 December 2012, amounts in excess of the
threshold are taxed at 33% (previously 30%). Taxation of Eligible US Holders: An Eligible US Holder, for the purpose of this discussion, is a beneficial owner of ordinary shares or ADSs who is (a) a resident of the United States
for the purposes of US federal income tax, (b) not a resident of Ireland for the purposes of Irish taxes and (c) not engaged in trade or business in Ireland through a permanent establishment, and (d) eligible for benefits under the
Tax Treaty. Eligible US Holders of ADSs are treated as the owners, as appropriate, of the underlying ordinary shares for US federal income tax purposes and for the
purposes of the Tax Treaty.  Irish Tax(i)

Irish Income TaxAn Eligible US Holder is not liable to Irish income tax on dividends paid by AIB where the recipient is:

a person, other than a company, who is not ordinarily resident in Ireland in a year of assessment; or

a company that is not under the control (direct or indirect) of a person or persons who are Irish resident.

a company, the principal class of shares of which (or of its 75% parent or of a collection of companies which own 100% of that company) are
substantially and regularly traded on a recognised stock exchange.(ii)

Irish Dividend Withholding Tax and Related Tax Treaty ProvisionsGenerally an exemption from Irish DWT is available where the Eligible US Holder provides AIBs Registrar with the relevant declaration,
certified as required and, in the case of an individual, is not ordinarily resident in Ireland. For further detail in relation to claims for exemption, see above
under Irish Dividend Withholding Tax (DWT)  General. Eligible US Holders who have DWT deducted from their dividend may, subject to certain conditions, be entitled to a refund by making an application to the Irish Revenue
Commissioners at the address shown above. Where entitlement to repayment under Irish domestic law cannot be established, the provisions of the Tax Treaty may apply. The provisions of the Tax Treaty can limit the Irish tax liability of an Eligible US
Holder, who is unable to claim repayment of the full DWT deducted from the dividend, to 15% of the aggregate of the cash dividend and related DWT (the gross amount). In such circumstances, the Eligible US Holder may claim repayment from
the Irish Revenue Commissioners under the provisions of the Tax Treaty of the amount of DWT in excess of 15% of the gross amount of the dividend. (iii)

Gains on Sale, Exchange or Other DisposalA gain realised on the sale, exchange or other disposal of the AIB ordinary shares or ADSs by an Eligible US Holder who is not ordinarily
resident in Ireland for Irish tax purposes is not subject to Irish capital gains tax.(iv)

Irish Stamp DutyIn the case of a transfer or sale of AIB ordinary shares, stamp duty will generally be charged at the rate of 1% of the value of the
shares. The surrender of ADSs to the Depositary in return for ordinary shares, where the surrender does not relate to a sale or contemplated sale or mortgage of such
AIB ordinary shares, will generally not be chargeable to the 1% stamp duty. Where there is a surrender of the ADSs to the Depositary in return for ordinary shares which is done as a conveyance on sale or in contemplation of sale, then stamp duty is
payable at the rate of 1% of the value of the shares.(v)

Taxation of a gift or an inheritanceCapital acquisitions tax (CAT), comprising gift tax and inheritance tax, applies to gifts and bequests of
Irish situate assets. CAT may also apply to non-Irish situate assets depending on the tax residence, ordinary residence and domicile positions of the donor and the successor or donee. As such, CAT applies to gifts and bequests of AIB ordinary
shares. It is not entirely clear whether ADSs representing ordinary shares are regarded as non-Irish situate assets. As such, CAT may also apply to gifts and bequests of ADSs representing ordinary shares regardless of the residence, ordinary
residence or domicile of the donor and successor or donee. For further details of CAT see Taxation of Irish Shareholders - Taxation of a Gift or an Inheritance.US Tax(i)  US Federal Income TaxationAn Eligible US Holder is subject to US Federal income taxation on the gross amount of any dividend paid by AIB out of AIBs current or accumulated earnings and profits
(as determined for US federal income tax purposes). Dividends received by individuals before 1 January 2013, that constitute qualified dividend income, are taxed at a maximum federal tax rate of 15%, subject to certain holding requirements.
Holders of Ordinary Shares or ADSs must have held their shares for more than 60 days during the 121-day period beginning 60 days before the ex-dividend date. Subject to the same holding requirements, beginning in 2013, dividends received by
individuals, with taxable income above certain threshold amounts, are taxed at a maximum federal tax rate of 20%.








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Dividends paid by AIB with respect to ordinary shares or ADSs will be qualified dividend income for US tax purposes if AIB was not in the
year prior to the year in which the dividend was paid, and is not, in the year in which the dividend was paid, a passive foreign investment company (PFIC). Based on our current and projected financial data, we believe AIB should not be
treated as a PFIC for US federal income tax purposes with respect to tax years 2011 and 2012 and we do not anticipate that AIB would be treated as a PFIC for the 2013 year.
Dividends paid by AIB to US corporate stockholders with respect to ordinary shares and ADSs, will not qualify for the dividend received deduction otherwise generally
allowed to such stockholders. The amount of the dividend to be included in income will be the US dollar value of the euro payment made, determined at the spot US dollar/euro exchange rate on the date of actual or constructive receipt by the Eligible
US Holder in the case of ordinary shares, or by the Depositary in the case of ADSs, regardless of whether the payment is actually converted into US dollars. Any gain or loss recognised by an Eligible US Holder on the sale or disposal of euros as a
result of currency exchange fluctuations during the period from the date the dividend payment is includable in income to the date the payment is converted into US Dollars will be treated as ordinary income or loss and will not be eligible for the
special tax rate applicable to qualified dividend income. Distributions in excess of current or accumulated earnings and profits would be treated as a non-taxable
return of capital to the extent of the Eligible US Holders basis in his AIB ordinary shares or ADSs and would reduce the US Holders basis in his AIB ordinary shares or ADSs. Any remaining excess would be treated for US federal tax
purposes as capital gains, provided the AIB ordinary shares or ADSs are capital assets in the hands of such Eligible US Holder. Subject to various limitations,
Eligible US Holders who have Irish DWT applied to their dividend may be entitled to a credit against their US federal income tax liability. Under US tax law, the limitation on foreign taxes eligible for credit is calculated separately with respect
to separate classes of income. Dividends paid by AIB are foreign source passive category income or general category income depending on the holders circumstances. In either case, foreign tax credits allowable with
respect to each category of income cannot exceed the US federal income tax otherwise payable with respect to such category of income. No foreign tax credit is allowed to the extent a refund of DWT is available to the Eligible US Holder.(ii) US Withholding TaxA holder of ADSs may, under certain circumstances, be subject to US backup withholding tax with respect to dividends paid on ADSs or the
proceeds of sale of ADSs. A US holder of ADSs is subject to backup withholding tax unless such holder: (i) is a corporation or comes within the certain other exempt categories and, when required, certifies this fact; or (ii) provides a
correct tax- payer identification number (TIN), certifies that such holder is not subject to backup withholding tax and otherwise complies with applicable requirements of the backup withholding tax rules. Subject to certain limitations,
amounts withheld under the US backup withholding tax rules may be creditable against the holders US federal income tax liability.(iii)

US State and local taxesState and local taxes may apply to distributions received by holders of AIB ordinary shares or ADSs.(iv)

Gains on sale, exchange or other disposalUpon the sale, exchange or other disposal of AIB ordinary shares or ADSs, a US Holder will recognise a gain or loss, if any, equal to the
difference between the amount realised upon the sale, exchange, or disposal and the US Holders tax basis. Generally, a holders tax basis in AIB ordinary shares or ADSs will be the US Holders cost. Such gain or loss will generally
be capital gain or loss. Capital gains recognised by non-corporate US Holders before 1 January 2013, on shares held longer than one year, are taxed at a maximum rate of 15%. Beginning in 2013, capital gains recognized by non-corporate US
Holders, with taxable income above certain threshold amounts, are taxed at a maximum tax rate of 20%. Any gain will generally be treated as income from sources within the US for foreign tax credit limitation purposes.
Effective 10 October 2011 AIB terminated its ADR facility. A US Holder of ADSs could surrender their ADSs and receive underlying AIB ordinary shares. A US Holder
does not recognise gain or loss on the surrender of ADSs and receipt of AIB ordinary shares. The US Holders tax basis in the ordinary shares received is equal to the tax basis in the ADSs surrendered. A US Holder that does not surrender their
ADSs ultimately will receive proceeds in connection with the termination and, at that point, under current law, would be treated as having sold their shares, recognising gain or loss equal to the difference between the amount realised and the US
Holders tax basis. As discussed above such gain or loss would generally be capital gain or loss.(v)

Taxation of a gift or an inheritanceThe 1951 estate tax convention between Ireland and the US is accepted by both countries revenue authorities as applying to Irish inheritance tax, but
not gift tax. Under this convention and US tax law any such inheritance tax payable in Ireland generally will be allowed as a credit, subject to certain limitations, against so much of the US federal estate tax as is payable on the same property.
Transfers of AIB ordinary shares or ADSs upon death may be subject to US federal estate tax subject to certain threshold exemptions. US federal gift tax may apply to gifts of AIB ordinary shares or ADSs subject to certain thresholds and exemptions.
No credit is allowable against Federal gift tax for Irish gift tax paid on the same property.








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Exchange controls Under Article 63 of the Treaty on the Functioning of the European Union, all restrictions on the movements of capital between member states of the European Union and
between such member states and third countries are prohibited. Under Article 66 of the Treaty where, in exceptional circumstances, movements of capital to or from
third countries cause, or threaten to cause, serious difficulties for the operation of economic and monetary union, the Council of the European Union, on a proposal from the European Commission, and after consulting the European Central Bank, may
take safeguard measures with regard to third countries for a period not exceeding six months if such measures are strictly necessary. Under Article 75 of the
Treaty, where is necessary to prevent and combat terrorism and related activities, the European Parliament and the Council, acting by means of regulations are to define a framework for administrative measures with regard to capital movements and
payments, such as the freezing of funds, financial assets or economic gains belonging to, or owned or held by, natural or legal persons, groups or non-State entities. There are no restrictions under AIBs Articles of Association or under Irish law, as currently in force, that limit the right of non-resident or foreign owners, as
such, to hold securities of AIB freely or, when entitled, to vote such securities freely. There are currently no restrictions under Irish law, decrees, or regulations affecting the remittance of dividends or other payments to non-resident holders of
AIB securities except in respect of United Nations and/or European Union sanctions.








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Employees At year end December 2012, AIB Group had 13,429(1) full time equivalent staff in payment (end of month average staff in payment full time equivalent, excluding career
breaks and other unpaid long-term leaves) on a worldwide basis, mainly in the Republic of Ireland, Northern Ireland, Great Britain, USA. AIB Group offers a wide
range of employee relations programmes in each of the areas in which it operates. AIB, and the Irish Bank Officials Association (IBOA) which is the principal recognised trade union for bank employees conduct their employee
relations in keeping with agreed Partnership Principles, which, since February 2000, have underpinned the approach taken in employee and industrial relations. The
AIB Code of Conduct, which was extensively revised in 2012, sets out the standards of conduct and behaviour required from staff. This Code is subject to review annually. AIB encourages its staff to raise any concerns of wrongdoing through a number
of channels, both internal and external. One such channel, the AIB Speak-Up policy, includes a confidential external helpline. Staff are assured that if they raise a concern in good faith, AIB will not tolerate any victimisation or unfair treatment
of the staff member as a result. Pay developments in 2012 reflected the financial position of the Group and ongoing pressure to retain key staff and skills in light
of extensive restructuring of the Groups activities, the implementation of pay and benefit reductions and the introduction of Early Retirement and Voluntary Severance Schemes. Remuneration spend was tightly managed within tight budgetary
parameters. There were no general salary increases or increments paid in 2012 and there were no bonus or share schemes in operation. Specific pay increases awarded during the year reflected the need to retain staff in critical areas and in
recocognition of additional responsibilities undertaken following the Groups restructuring and significant staff numbers departing under the early retirement and voluntary severance programmes. The average number of employees by market segment for 2012 and 2011 and by division for 2010 (excluding employees on career breaks, long term absences or any other
unpaid leaves) are described in the table below. See also note 65 to the consolidated financial statements.  Years ended 31 December2012


2011






2010Continuing operations











Continuing operationsPBB


6,285



6,017




AIB Bank ROI


6,850CICB


1,620
(4)


1,752(5)




Capital Markets(5)(7)


2,177AIB UK


2,234



2,282




AIB Bank UK


2,342EBS(2)


604



288




Central & Eastern Europe(8)


N/AGroup


3,965
(3)


3,943




Group(8)


2,88614,708



14,282







14,255Discontinued operations











Discontinued operationsBZWBK






2,434(6)
(9)



BZWBK(6)(9)


9,631Total


14,708
(1)


16,716







23,886  (1)
The 12 month average above of 14,708 is higher than the actual December 2012 figure of 13,429 (excludes leavers from 19 December to 31 December 2012). The variance is a result of the impact that voluntary
severance and early retirements, predominantly in quarter 4, have had on the actual AIB figures. (2)
EBS was acquired on 1 July 2011, accordingly, staff numbers have been time apportioned in 2011. (3)
The figures for Group include the following centralised functions: Group Services and Transformation; Chief Financial Office; Chief Risk Office; Non Core Unit; Corporate Affairs & Marketing; Office of Law Agent
and Office of Group Internal Audit. (4)
AIB Investment Managers was disposed of on 1 June 2012, data has been included for January to May 2012. (5)
AIBs investment in Goodbodys was derecognised at 31 December 2010, therefore its employees are not included from that date. (6)
Central and Eastern Europe division ceased operations in 2010, following the classification of BZWBK and BACB as a discontinued operation during the year. (7)
In 2010, Treasury segment employees of BZWBK were no longer included in Capital Markets. (8)
In 2010, the Group segment included employees in AmCredit and assignees based in BZWBK and BACB, which had previously been included within the Central and Eastern Europe division. (9)
BZWBK includes all staff in BZWBK and its subsidiaries, excluding assignees from AIB.








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Description of property As at 31 December 2012, AIB operated from an estate of circa 290 branches/outlets, and 28 offices. These are held principally in the Republic of Ireland, Northern
Ireland, Great Britain, Isle of Man, and the Channel Islands. The estate is held under a combination of freehold/long leasehold and short lease tenures. AIB also holds a large number of ATM locations under lease and licence agreements in the
Republic of Ireland. Over the course of 2012, AIB undertook a large scale branch consolidation programme resulting in the closure of 52 branches and sub offices in
the Republic of Ireland, and five in Northern Ireland. A further 17 branches in the Republic of Ireland will close over the first half of 2013. These properties, depending on tenure, will be placed on the market for sale, or surrendered back to
landlords over the course of the year. AIBs headquarters is located at Bankcentre, Ballsbridge, Dublin 4. This is a large campus style complex of interlinked
office buildings on a site of approximately 14 acres. The complex houses most of AIBs support functions, in addition to car parking, meeting and staff welfare facilities. AIB holds this site under a number of separate lease arrangements. AIB also holds an office under lease at AIB International Centre located in Dublins International Financial Services Centre (IFSC), which it will exit
mid-2013. In addition, AIB has a number of other head office properties in principal towns nationwide including Dublin, Naas, Cork, Limerick, Waterford and Galway. In Northern Ireland, AIBs First Trust Bank head office is located at First Trust Centre, 92 Ann Street, Belfast. First Trust also holds a large property at
Queens Square, Belfast and has a branch network comprising 42 locations. AIBs UK headquarters is located at Tenterden Street, West London which is held
under lease. In addition, AIB has a further nine leasehold properties in and around London, with another 15 locations nationwide. An additional 12 closed premises are also held under management which are to be reviewed over the course of 2013. The
lease on AIB UKs previous head office location, Bankcentre, Uxbridge, expired and was vacated in December 2012. EBS is largely accommodated across the AIB
Bankcentre campus. The former EBS headquarters, at 2 Burlington Road, Dublin 4, is now an integrated part of the AIB head office estate. This is a modern 80,000 square foot facility held under lease. EBS also leased a 7,000 square foot unit on
Amiens Street, Dublin 2 which ceased in September 2012. The branch estate comprises 62 outlets which are leased or owned by EBS with a further 24 locations held by tied agents and franchisees. Other shareholder information 1.
Internet-based Shareholder Services Ordinary Shareholders with access to the internet may: 

register for electronic communications on the following link, www.computershare.com/register/ie; 

check their shareholdings on the Companys Share Register; 

check past dividend payment details; 

update your information online on the following link: www.investorcentre.com/ie/changeaddress; and 

download standard forms required to initiate changes in details held by the Registrar, by accessing AIBs website at www.aibgroup.com, clicking on the Investor Relations, Shareholder Information and Personal
Shareholder Details option, and following the on-screen instructions. When prompted, the Shareholder Reference Number (shown on the shareholders share certificate, dividend counterfoil and personalised circulars) should be entered. These
services may also be accessed via the Registrars website at www.computershare.com. Shareholders may also use AIBs website to access the Companys Annual Financial Report.  2.
Stock Exchange Listings Allied Irish Banks, p.l.c. is an Irish-registered company. Its ordinary shares are traded on the Enterprise Securities Market (ESM) of the Irish Stock Exchange.  3.
Registrar The Companys Registrar is: Computershare Investor Services (Ireland) Ltd., Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18. Telephone: +353-1-247 5411. Facsimile: +353-1-216 3151. Website: www.computershare.comor www.investorcentre.com/ie/contactus  4.
Shareholding analysis The National Pensions Reserve Fund Commission hold 516,237,363,722 ordinary shares of  0.01 each in the share capital of
Allied Irish Banks, p.l.c..








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Financial calendar Annual
General Meeting: 20 June 2013, at the Companys Head office at Bankcentre, Ballsbridge, Dublin 4. Interim results Unaudited interim results for the half-year ending 30 June 2013 will be announced towards the end of July/early August 2013 and will be available on the
Companys website  www.aibgroup.com. Shareholders enquires regarding Ordinary Shares should be addressed to: Computershare Investor Services (Ireland) Ltd., Heron House, Corrig Road, Sandyford Industrial Estate, Dublin 18, Ireland. Telephone: +353 1 247 5411 Facsimile: +353 1 216 3151 Website: www.computershare.com or www.investorcentre.com/ie/contactus or www.aibgroup.com








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ABS

Asset backed securities are securities which are collateralised by income producing assets other than mortgage loans. They are typically structured in tranches of differing credit qualities. Some common types of asset backed
securities are those backed by credit card receivables, home equity loans and car loans.Arrears

Arrears relates to any interest or principal on a loan which was due for payment, but where payment has not been received. Customers are said to be in arrears when they are behind in
fulfilling their obligations with the result that an outstanding loan is unpaid or overdue.Banking
Book

A regulatory classification consisting of all exposures which are not in the trading book. Banking book positions are typically structural in nature (i.e. when arises as a consequence
of the size and composition of the Groups balance sheet) or relates to investment positions being maintained by the Groups Treasury function (e.g. Available for Sale securities portfolios). These positions attract regulatory capital
requirements that reflect inherent credit and interest rate risks.Basis point

One hundredth of a per cent (0.01%), so 100 basis points is 1%. Used in quoting movements in interest rates or yields on securities.Basis risk

A type of market risk that refers to the possibility that the change in the price of an instrument (e.g. asset, liability, derivative, etc) may not match the change in price of the
associated hedge, resulting in losses arising in the Groups portfolio of financial instruments.Buy- to- let

A residential mortgage loan approved for the purpose of purchasing a residential investment property to rent out.CBOs/CDOs

A collateralised bond obligation (CBO)/collateralised debt obligation (CDO) is an investment vehicle (generally an SPE) which allows third party investors to
make debt and/or equity investments in a vehicle containing a portfolio of loans and bonds with certain common features. In the case of synthetic CBOs/CDOs the risk is backed by credit derivatives instead of the sale of assets (cash
CBOs/CDOs).CET 1 ratio

Common equity tier 1  A measurement of a banks core equity capital compared with its total risk-weighted assets.Collectively
assessed
impairment

Impairment assessment on a collective basis for portfolios of loans that are not considered individually significant for specific provisioning. In addition, portfolios of performing
loans are assessed on a collective basis to estimate the amount of losses incurred, but which have yet to be individually identified (IBNR provisions).Commercial
paper

Commercial paper is similar to a deposit and is a relatively low-risk, short-term, unsecured promissory note traded on money markets issued by companies or other entities to finance
their short-term expenses. In the USA, commercial paper matures within 270 days maximum, while in Europe, it may have a maturity period of up to 365 days; although maturity is commonly 30 days in the USA and 90 days in Europe.Commercial

Commercial property lending focuses primarily on the following property segments:property

a) Apartment complexes;b) Develop to sell;c) Office projects;d) Retail projects;e) Hotels; andf) Selective mixed-use projects and special purpose properties.Concentration
risk

Concentration risk is the risk of loss from lack of diversification, investing too heavily in one industry, one geographic area or one type of security.Contractual
maturity

The period when a scheduled payment is due and payable in accordance with the terms of a financial instrument.Core tier 1
capital

Called-up share capital, share premium and eligible reserves plus equity non-controlling interests, less goodwill, intangible assets and supervisory deductions as specified by the
Central Bank of Ireland.CRD

Capital requirements directives (CRD): Capital adequacy legislation implemented by the European Union and adopted by member states. They are designed to ensure the financial
soundness of credit institutions and certain investment firms.Credit default
swaps

An agreement between two parties whereby one party pays the other a fixed coupon over a specified term. The other party makes no payment unless a specified credit event, such as a
default, occurs, at which time a payment is made and the swap terminates. Credit default swaps are typically used by the purchaser to provide credit protection in the event of default by a counterparty.Credit
derivatives

Financial instruments where credit risk connected with loans, bonds or other risk-weighted assets or market risk positions is transferred to counterparties providing credit protection.
The credit risk might be the exposure inherent in a financial asset such as a loan or might be generic credit risk such as the bankruptcy risk of an entity.Credit risk

The risk that one party to a financial instrument will cause a financial loss to the other party by failing to discharge an
obligation.








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Credit risk mitigation

Techniques by lenders used to reduce the credit risk associated with an exposure by the application of credit risk mitigants, examples include: collateral; guarantee; and credit protection.Credit risk spread

Credit spread can be defined as the difference in yield between a given security and a comparable benchmark government security or the difference in value of two securities with
comparable maturity and yield but different credit qualities. It gives an indication of the issuers or borrowers credit quality.Criticised loans

Loans requiring additional management attention over and above that normally required for the loan type.Customer accounts

A liability of the Group where the counterparty to the financial contract is typically a personal customer, a corporation (other than a financial institution) or the government. This
caption includes various types of deposits and credit current accounts, all of which are unsecured.Debt Restructuring

This is the process whereby customers in arrears, facing cash flow or financial distress renegotiate the terms of their loan agreements in order to improve the likelihood of repayment.
Restructuring may involve altering the terms of a loan agreement including a partial write down of the balance. In certain circumstances, the loan balance may be swapped for equity in the counterparty.Debt securities

Assets on the Groups balance sheet representing certificates of indebtedness of credit institutions, public bodies and other undertakings.Debt securities in issue

Liabilities of the Group which are represented by transferable certificates of indebtedness of the Group to the bearer of the certificates.Default

When a customer breaches a term and/or condition of a loan agreement, a loan is deemed to be in default for case management purposes. Depending on the materiality of the default, if
left unmanaged it can lead to loan impairment. Default is also used in Basel II context when a loan is either 91+ days past due or impaired, and may require additional capital to be set aside.Delinquency

Failure by a customer to repay an obligation when due or as agreed. In the case of loans and credit cards, this will arise when a payment of either capital and/or interest is 1 day or
more overdue. Overdrafts are deemed to be delinquent if an approved limit is exceeded for 1 day or more.Earnings constraint

Within the Group, market risk portfolios are controlled from a risk (using VaR limits) and financial perspective. The Earnings constraint is the Groups primary financial limit. It
is an expression of the Groups tolerance for gross income loss in any financial period (i.e. utilisation against the Earnings Constraint Limit is based on cumulative gross income in each half year).Economic capital

The amount of capital which the Group needs to protect against extreme losses from a material risk it is running (e.g. credit risk, market risk). It is based on internally developed
calculation methodologies and estimates, as opposed to regulatory capital, which uses a methodology determined by the Basel Accord and imposed by the Regulator.Eurozone

The eurozone represents the seventeen European Union countries that have adopted the euro as their common currency.Exposure at Default

Exposure at default (EAD) is the expected or actual amount of exposure to the borrower at the time of default.First/second lien

Where a property or other security is taken as collateral for a loan, first lien holders are paid before all other claims on the property. Second lien holders are subordinate to the
rights of first lien holders to a property security.Forbearance

Forbearance is the term that is used when repayment terms of a loan contract have been renegotiated in order to make repayment terms more manageable for borrowers. Forbearance
techniques have the common characteristic of rescheduling principal or interest repayments, rather than reducing them. Standard forbearance techniques employed by the Group include: - interest only; a reduction in the payment amount; a temporary
deferral of payment (a moratorium); extending the term of the mortgage; and capitalising arrears amounts and related interest.Sub-headings under forbearance include:Split mortgagesA split mortgage is one of the forbearance solutions that may be offered to customers in arrears whose mortgages are unsustainable. The loan is split in to two parts, a sustainable
element and an unsustainable element which are subject to separate repayment schedules.Negative equity trade downA forbearance solution which allows a customer to sell their residential property and subsequently purchase a new property and transfer the negative equity portion to a new loan secured
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Voluntary sale for lossA forbearance solution which may be offered to residential mortgage customers in financial difficulty. This operates on a voluntary basis whereby the customer agrees to sell the
mortgage property and repay any residual debt outstanding.Funded/ unfunded exposures

Funded: Loans, advances and debt securities where funds have been given to a debtor with an obligation to repay at some future date and on specific
terms. Unfunded: Unfunded exposures are those where funds have not yet been advanced to a debtor, but where a commitment exists to do so at a future date or
event.Guarantee

An undertaking by the Group/other party to pay a creditor should a debtor fail to do so.Home loan

A loan secured by a mortgage on the primary residence or second home of a borrower.ICAAP

Internal Capital Adequacy Assessment Process (ICAAP) The Groups own assessment, through an examination of its risk profile from regulatory and economic capital
perspectives, of the levels of capital that it needs to hold.Impaired loans

Loans are typically reported as impaired when interest thereon is 91 days or more past due or where a provision exists in anticipation of loss, except: (i) where there is sufficient
evidence that repayment in full, including all interest up to the time of repayment (including costs) will be made within a reasonable and identifiable time period, either from realisation of security, refinancing commitment or other sources; or
(ii) where there is independent evidence that the balance due, including interest, is adequately secured. Upon impairment the accrual of interest income based on the original terms of the claim is discontinued but the increase of the present value
of impaired claims due to the passage of time is reported as interest income.IRBA

The Internal Ratings Based Approach (IRBA) allows banks, subject to regulatory approval, to use their own estimates of certain risk components to derive regulatory capital
requirements for credit risk across different asset classes. The relevant risk components are: Probability of Default (PD); Loss Given Default (LGD); and Exposure at Default (EAD).ISDA Master Agreements

Standardised contracts, developed by the International Swaps and Derivatives Association (ISDA) used as an umbrella under which bilateral derivatives contracts are entered
into.LCR

Liquidity coverage ratio (LCR) is the ratio of the stock of high quality liquid assets to expected net cash outflows over the following 30 days. The Basel III rules require
this ratio to be at least 100% with effect from 2015. The Liquidity coverage ratio is designed to ensure that financial institutions have the necessary assets on hand to ride out short-term liquidity disruptions.Leveraged lending

Leveraged lending involves lending to entities by leveraging off their equity structures having considered the cash generating capacity of the business and its capacity to repay any
associated debt. Leveraging structures are typically used in management and private equity buy-outs, mergers and acquisitions. Leverage lending typically is to non-investment grade borrowers and carries commensurate rates of return.Leverage ratio

To prevent an excessive build-up of leverage on institutions balance sheets, Basel III introduces a non risk- based leverage ratio to supplement the risk-based capital framework
of Basel II. It is defined as the ratio of tier 1 capital to total exposures. Total exposures include on-balance sheet items, off-balance sheet items and derivatives, and should generally follow the accounting measure of exposure.LGD

Loss Given Default (LGD) is the expected or actual loss in the event of default, expressed as a percentage of exposure at default.Liquidity risk

The risk that Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive cost. This risk arises from mismatches
in the timing of cash flows.Loans past due

When a borrower fails to make a contractually due payment, a loan is deemed to be past due. Past due days is a term used to describe the cumulative number of days that a
missed payment is overdue. Past due days commence from the close of business on the day on which a payment is due but not received. In the case of overdrafts, past due days are counted once a borrower:  has breached an advised limit;  has been advised of a limit lower than the then current amount outstanding; or  has drawn credit without authorisation. When a borrower is past due, the entire exposure is reported as past due, rather
than the amount of any excess or arrears.Loan to deposit ratio

This is the ratio of loans and receivables to customers as presented in the statement of financial position compared to customer accounts.Loan workout

Loan workout is the process whereby once an advance is deemed to be criticised (i.e. Watch, Vulnerable or Impaired), the Group monitors and reviews
the advance regularly with the objective of working with the customer to resolve their financial difficulties, which may include restructuring, in order to maximise the level of recovery by the Group.








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LTV

Loan to value (LTV) is an arithmetic calculation that expresses the amount of the loan as a percentage of the value of security/collateral.
A high LTV indicates that there is less of a cushion to protect the lender against collateral price falls or increases in the loan carrying amount if repayments are not made and interest is capitalised onto the outstanding loan balance.MCEV

Market consistent embedded value (MCEV) of a life insurance company represents the shareholders interests in the earnings
distributable from assets allocated to the covered business after sufficient allowance for the aggregate risks in the covered business has been made.Medium term notes

Medium term notes (MTNs) are notes issued by the Group across a range of maturities under European Medium Term Note Programme.Monte Carlo Simulation

A mathematical modelling process or analytical technique for solving a problem by performing a large number of trial runs, called simulations, and
inferring a solution from the collective results of the trial runs. It is a standard method for calculating the probability distribution of possible outcomes and has particular application in determining the Value at Risk
(VaR) of portfolios containing option products.Mortgage covered securities

Mortgage covered securities (also known as covered bonds) are debt securities backed by cash flows from mortgages. They are issued for the purpose of
financing loans secured on residential property.NAMA

National Asset Management Agency (NAMA) was established in 2009 as one of a number of initiatives taken by the Irish Government to address
the serious problems which arose in Irelands banking sector as the result of excessive property lending.Net interest income

The amount of interest received or receivable on assets net of interest paid or payable on liabilities.NSFR

The Net Stable Funding Ratio (NSFR), a significant part of the Basel III bank liquidity regime. The NSFR aims to ensure banks are able to survive an
extended closure of wholesale funding markets. It establishes a minimum acceptable amount of stable funding based on the liquidity characteristics of a banks assets and activities over a one year horizon. The Basel III rules require this ratio
to be over 100% with effect from 2018. The NSFR is still subject to an observation period and review to address any unintended consequences.Optionality risk

A type of market risk associated with option features that are embedded within assets or liabilities on the Groups balance sheet. The embedded
option features can significantly change the cash flows (and/or redemption) of the contract and can, therefore, effect its duration, yield and pricing. Examples include bonds with early call provisions or prepayment risk on a mortgage portfolio.
Where these risks are left unhedged, it can result in losses arising in the Groups portfolio.OUBBs

Own-use bank bonds (OUBBs) Banks issue government-guaranteed bonds to themselves and use these bonds as collateral to procure funding from
the European Central Bank.PCA

Principal components analysis (PCA) is mathematical way of identifying patterns in data. It is used to analyse interest rate shock scenarios
by decomposing the interest rate term structure into its principal components.PD

Probability of Default (PD) is the likelihood that a borrower will default on an obligation to repay.Prime loan

Loan in which both the criteria used to grant the loan (loan-to-value, debt-to-income, etc.) and to assess the borrowers history (no past due
reimbursements of loans, no bankruptcy, etc.) are sufficiently conservative to rank the loan as high quality and low-risk.Re-pricing risk

Repricing risk is a form of interest rate risk (i.e. a type of market risk) that occurs when asset and liability positions are mismatched in terms of
re-pricing (as opposed to final contractual) maturity. Where these interest rate gaps are left unhedged, it can result in losses arising in the Groups portfolio of financial instruments.Repo

Repurchase Agreement (Repo) is a short-term funding agreement that allows a borrower to create a collateralised loan by selling a financial
asset to a lender. As part of the agreement the borrower commits to repurchase the security at a date in the future repaying the proceeds of the loan. For the counterparty to the transaction it is termed a reverse repurchase agreement or a reverse
repo.RWAs

Risk weighted assets (RWAs) are a measure of assets (including off-balance sheet items converted into asset equivalents e.g. credit lines)
which are weighted in accordance with prescribed rules and formulas as defined in the Basel Accord to reflect the risks inherent in those assets.RMBS

Residential mortgage-backed securities (RMBS) are debt obligations that represent claims to the cash flows from pools of mortgage loans,
most commonly on residential property.Securitisation

Securitisation is the process of aggregation and repackaging of non-tradable financial instruments such as loans and receivables, or company cash flow
into securities that can be issued and traded in the capital markets.SPE

Special purpose entity (SPE) is a legal entity which can be a limited company or a limited partnership created to fulfil narrow or specific objectives. A company will
transfer assets to the SPE for management or use by the SPE to finance a large project thereby achieving a narrow set of goals without putting the entire firm at risk.








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Structured securities

This involves non-standard lending arrangements through the structuring of assets or debt issues in accordance with customer and/or market requirements.
The requirements may be concerned with funding, liquidity, risk transfer or other needs that cannot be met by an existing off the shelf product or instrument. To meet this requirement existing products and techniques must be engineered into a
tailor-made product or process.Sub-prime

Extension of credit to borrowers who, at the time of the loans origination, exhibit characteristics indicating a significantly higher risk of
default than traditional bank lending customers.Tier 1 capital

A measure of a banks financial strength defined by the Basel Accord. It captures core tier 1 capital plus other tier 1 securities in issue, but is
subject to deductions relating to the excess of expected loss on the IRBA portfolios over the IFRS provision on the IRBA portfolios, securitisation positions and material holdings in financial companies.Tier 2 capital

Broadly includes qualifying subordinated debt and other tier 2 securities in issue, eligible collective impairment provisions, unrealised available for
sale equity gains and revaluation reserves. It is subject to deductions relating to the excess of expected loss on the IRBA portfolios over the accounting impairment provisions on the IRBA portfolios, securitisation positions and material holdings
in financial companies.Tracker mortgage

A mortgage with a variable interest rate which tracks the European Central Bank (ECB) rate, at an agreed margin above the ECB rate and will
increase or decrease within five days of an ECB rate movement.VaR

The Groups core risk measurement methodology is based on an historical simulation application of the industry standard Value at Risk
(VaR) technique. The methodology incorporates the portfolio diversification effect within each standard risk factor (interest rate, credit spread, foreign exchange, equity, as applicable). The resulting VaR figures, calculated at the
close of business each day, are an estimate of the probable maximum loss in fair value over a one day holding period that would arise from a worst case movement in market rates. This VaR metric is derived from an observation of
historical prices over a period of one year and assessed at a 95% statistical confidence level (i.e. the VaR metric may be exceeded at least 5% of the time).Vulnerable loans

Loans where repayment is in jeopardy from normal cash flow and may be dependent on other sources for repayment.Watch loan

Loans exhibiting weakness but with the expectation that existing debt can be fully repaid from normal cash flow.Yield curve risk

A type of market risk that refers to the possibility that an interest rate yield curve changes its shape unexpectedly (e.g. flattening, steepening, non-parallel shift), resulting in
losses arising in the Goups portfolio of interest rate instruments.








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Ireland & Britain Group
Headquarters Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 Website: http://www.aibgroup.com AIB Bank - Personal, Business & Corporate Banking Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 Facsimile: + 353 1 660 3063 First Trust Bank First Trust Centre, 92 Ann Street, Belfast BT1 3HH. Telephone: + 44 28 9032 5599 From RoI: 048 9032 5599 Allied Irish Bank (GB) 4 Tenterden Street, Off Hanover Square London W1S 1TE Telephone: + 44 20 7647 3300 Facsimile: + 44 20 7629 2376 AIB Corporate Banking AIB Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 Facsimile: + 353 1 668 2508 AIB Finance & Leasing AIB Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 Facsimile: + 353 1 668 2508 AIB Customer Treasury Services AIB Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 Facsimile: + 353 1 641 2201 AIB Business Banking AIB Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 6411603 Facsimile: + 353 1 7721221
 AIB Commercial Finance Limited AIB Bankcentre, Ballsbridge, Dublin 4. Telephone: + 353 1 667 0233 Facsimile: + 353 1 667 0250 AIB Corporate Banking Britain St Helens, 1 Undershaft, London EC3A 8AB. Telephone: + 44 207 090 7130 Facsimile: + 44 207 090 7100 EBS Limited The EBS Building, 2 Burlington Road, Dublin 4. Telephone: + 353 1 665 9000 Facsimile: + 353 1 874 7416 AIB Financial Solutions Group Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 AIB Arrears Support Unit Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 AIB Enterprise Lending Services Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 AIB Transactions and Non Core Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311 AIB Third Party Servicing Bankcentre, PO Box 452, Ballsbridge, Dublin 4. Telephone: + 353 1 660 0311
 USA AIB Corporate Banking North America 1166 Avenue of the Americas, 18th floor, New York, NY 10036. Telephone: + 1 212 339 8000 Facsimile: + 1 212 515 6710 AIB Customer Treasury Services 1166 Avenue of the Americas, 18th floor, New York, NY 10036. Telephone: + 1 212 339 8000 Facsimile: + 1 212 339 8006
   All numbers are listed with international codes. To
dial a location from within the same jurisdiction, drop the country code after the + sign and place a 0 before the area code. This does not apply to calls to First Trust from Ireland (Republic).








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AAccounting policies


193Administrative expenses


237Annual General Meeting


404Allied Irish Banks, p.l.c. (Parent company) financial statements and notes


342Approval of financial statements


341Acquisition of EBS Limited


255Associated undertakings


271Audit Committee


176Auditors fees


247Average balance sheets and interest rates


337Aviva Life Holdings Ireland Limited


273BBoard Committees


169Board & Executive Officers


168Businesses of AIB Group


13CCapital adequacy information


44Capital management


43Capital reserves


292Capital redemption reserves


292Chairmans statement


4Chief Executives review


6Commitments


334Company secretary


174Contingent liabilities and commitments


293Contributions from the Minister for Finance and the NPRFC


292Corporate Governance Statement


173Corporate Social Responsibility


9Credit ratings


122Credit risk


69Critical accounting policies


45Currency information


395Customer accounts


280DDebt securities in issue


281Deferred taxation


277Deposits by central banks and banks


279Derivative financial instruments


259Directors


168Directors interests


319Directors remuneration


316Discontinued operations


249Disposal groups and non-current assets held for sale


257Disposal of businesses


246
 Distributions on equity shares


254Dividend income


232Dividends


341EEarnings per share


252Employees


335&402Exchange controls


401Exchange rates


395FFair value of financial instruments


299Finance leases and hire purchase contracts


265Financial and other information


336Financial assets and financial liabilities by contractual residual maturity


313Financial assets and financial liabilities held for sale to NAMA


256Financial calendar


404Financial investments available for sale


144&268Financial investments held to maturity


55Financial liabilities by undiscounted contractual maturity


314Financial review


11Foreign exchange risk


152Forward looking information


2GGain on redemption/remeasurement of subordinated liabilities and other capital instruments


233Glossary


405Going concern


195Group Internal Audit


67IIncome statement


218Independent auditors report


382Intangible assets and goodwill


274Interest income


232Interest expense


232Interest rate risk (non-trading)


148Interest rate sensitivity


307Internal controls


182Investments in Group undertakings


361Irish Government


326
 LLiquidity risk


147Loans and receivables to banks


264Loans and receivables to customers


265MManagement report


21Market risk


148Memorandum and articles of association


388NNAMA senior bonds


267NAMA subordinated bond


268Net fee and commission income


232Net trading loss


233Nomination and Corporate Governance Committee


178Non-adjusting events after the reporting period


341Non-controlling interests in subsidiaries


251&292Notes to the financial statements


225OOff balance sheet arrangements


295Offer and listing details


396Operational risk


153Other equity interests


291Other liabilities


281Other operating (loss)/income


236Own shares


291PParent company risk information


156Pension risk


155Principal addresses


410Profit/(loss) on transfer of financial instruments to NAMA


235Profit/(loss) on disposal of property


246Property, plant & equipment


275Prospective accounting changes


214Provision for impairment on financial investments available for sale


246Provisions for impairment on loans and receivables


266Provisions for liabilities and commitments


282








411



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##### Table of Contents

|     |  |                   |  | 
|---- |  | ----------------- |  | 
|LOGO |  | Index (continued) |  | 






RRegulatory compliance


336Regulatory compliance risk


154Related party transactions


321Remuneration committee


179Report of the Directors


171Retirement benefits


239Risk appetite


65Risk framework


65Risk governance and risk management organisation


65Risk identification and assessment process


67Risk management


57SSchedule to Report of the Directors


385Segmental information


226Share-based compensation schemes


237Share capital


286Statement of cash flows


221Statement of comprehensive income


219Statements of changes in equity


223Statement of Directors responsibilities


381Statement of financial position


220Subordinated liabilities and other capital instruments


284Supervision and regulation


185TTaxation


248 & 398Trading portfolio financial assets


258Transfer of financial assets


296Transfer of business from Anglo Irish Bank Corporation


254WWebsite


404








412



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##### Table of Contents

2012 Form 20-F item number1

Identity of Directors, Senior Management and AdvisorsNot applicable2

Offer statistics and expected timetableNot applicable3

Key informationFinancial highlights

3Risk factors

584

Information on the companyHistory and development of the company

12Businesses of AIB

13Organisational structure:Businesses of AIB and

13Investment in Group undertakings

360Description of property

4035

Operating and Financial Review & ProspectsCritical accounting policies & estimates

45Management report

21Capital management

43Off-balance sheet arrangements

295Deposits and short term borrowings

49Financial investments available for sale

53Contractual obligations

566

Directors Senior Management & EmployeesThe Board and Executive Committee

168Report on Directors remuneration and interests

316Directors report

171Corporate Governance Statement

173Employees

4027

Major Stockholders and Related Party TransactionsMajor stockholders

172Related party transactions

3218

Financial informationLegal proceedings

294Prospective accounting changes

2149

The Offer and listingOffer and listing details

39610

Additional informationMemorandum and Articles of Association

388Exchange controls

401Taxation

398


11

Quantitative & Qualitative Disclosures about RiskRisk management - Factors

58Risk management - Framework

65Risk management - Individual risk types

68Risk management - Principal risks and uncertainties

58Supervision & Regulation

18512

Description of Securities other than Equity SecuritiesNot applicable13

Defaults, dividend Arrearages & DelinquenciesNot applicable14

Material Modifications to the Rights of Security Holders & Use of ProceedsNot applicable15

Controls & ProceduresEvaluation of disclosure controls & procedures

184Managements report on internal control over financial reporting

18416A

Audit Committee Financial Expert

17616B

Code of Ethics

18416C

Principal Accountant Fees & Services

24717

Financial StatementsNot applicable18

Financial Statements & ExhibitsFinancial Statements

218






413



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##### Table of Contents

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the registrant, Allied Irish Banks, p.l.c., certifies that it meets all of the requirements for filing on Form 20-F and has
duly caused this annual report to be signed on its behalf by the undersigned, thereunto duly authorized, on the 23 April 2013.



ALLIED IRISH BANKS, p.l.c.(Registrant)By:

PAUL STANLEYName:

Paul StanleyTitle:

Acting Chief Financial Officer




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##### Table of Contents

EXHIBIT INDEX



|              |  |                                                                                                                                                                                                                                                                                                                                                                                                       
|------------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|ExhibitNumber |  | Description of Exhibit                                                                                                                                                                                                                                                                                                                                                                                
|1.1           |  | Memorandum & Articles of Association                                                                                                                                                                                                                                                                                                                                                                  
|4.6           |  | ELG Scheme Guarantee Scheme Agreement  Allied Irish Banks, p.l.c. (incorporated by reference to Exhibit 4.6 to Allied Irish Banks, p.l.c.s Annual Report on Form 20-
F/A for the fiscal year ended December 31, 2009, filed with the SEC on September 27, 2010; file number 001-10284)                                                                                                              
|4.7           |  | ELG Scheme Guarantee Scheme Agreement  AIB Bank (CI) Ltd (incorporated by reference to Exhibit 4.7 to Allied Irish Banks, p.l.c.s Annual Report on Form 20-F/A for the
fiscal year ended December 31, 2009, filed with the SEC on September 27, 2010; file number 001-10284)                                                                                                                        
|4.8           |  | ELG Scheme Guarantee Scheme Agreement  AIB Group (UK) plc (incorporated by reference to Exhibit 4.8 to Allied Irish Banks, p.l.c.s Annual Report on Form 20-F/A for
the fiscal year ended December 31, 2009, filed with the SEC on September 27, 2010; file number 001-10284)                                                                                                                       
|4.9           |  | ELG Scheme Guarantee Scheme Agreement  Allied Irish Banks North America Inc (incorporated by reference to Exhibit 4.9 to Allied Irish Banks, p.l.c.s Annual Report on
Form 20-F/A for the fiscal year ended December 31, 2009, filed with the SEC on September 27, 2010; file number 001-10284)                                                                                                     
|4.11          |  | NPRFC Subscription Agreement (incorporated by reference to Exhibit 4.11 to Allied Irish Banks, p.l.c.s Annual Report on form 20-F for the fiscal year ended December 31, 2010, filed
with the SEC on May 18, 2011; file number 001-10284)                                                                                                                                                            
|4.13          |  | The Placing Agreement (incorporated by reference to Exhibit 4.13 to Allied Irish Banks, p.l.c.s Annual Report on form 20-F for the fiscal year ended December 31, 2010, filed with the
SEC on May 18, 2011; file number 001-10284)                                                                                                                                                                   
|4.14          |  | Acquisition Agreement dated 26 May 2011 among Allied Irish Banks p.l.c., the Minister for Finance of Ireland and the National Treasury Management Agency and EBS Building Society
(incorporated by reference to Exhibit 4.14 to Allied Irish Banks, p.l.c.s Annual Report on Form 20-F/A for the fiscal year ended December 31, 2011, filed with the SEC on February 27, 2013; file number 001-10284)
|4.15          |  | Note Purchase Agreement dated 26 July 2011 among Allied Irish Banks p.l.c. and the Minister for Finance of Ireland (incorporated by reference to Exhibit 4.15 to Allied Irish Banks,
p.l.c.s Annual Report on Form 20-F/A for the fiscal year ended December 31, 2011, filed with the SEC on February 27, 2013; file number 001-10284)                                                               
|4.16          |  | Relationship Framework dated 29 March 2012 specified by the Minister for Finance in respect of the relationship between the Minister for Finance and Allied Irish Banks,
p.l.c.                                                                                                                                                                                                                       
|8.1           |  | Subsidiaries List                                                                                                                                                                                                                                                                                                                                                                                     
|12.1          |  | Certification of Chief Executive Officer pursuant to Section 302 to the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                    
|12.2          |  | Certification of Acting Chief Financial Officer pursuant to Section 302 to the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                             
|13.1          |  | Certification of Chief Executive Officer pursuant to Section 906 to the Sarbanes-Oxley Act of 2002                                                                                                                                                                                                                                                                                                    
|13.2          |  | Certification of Acting Chief Financial Officer pursuant to Section 906 to the Sarbanes-Oxley Act of 2002