FAP.L Regulatory News (FAP)

19 February 2021

Ulster Bank Ireland DAC

Ulster Bank - Annual Report and Accounts and Pillar 3 Report 2020

Ulster Bank Ireland DAC ("UBIDAC") today announces the publication of its 2020 Annual Report and Accounts.

This company is a wholly-owned subsidiary of NatWest Holdings Ltd. ('NatWest Holdings'). The ultimate holding company is NatWest Group plc ('NWG' or the 'ultimate holding company').

The 2020 Annual Report and Accounts for Ulster Bank Ireland DAC is available on NatWest Group plc's website at https://investors.natwestgroup.com/reports-archive

We have also published the 2020 Pillar 3 report which is also available on our website.

For further information, please contact

Investor Relations

Alexander Holcroft

+44 (0) 207 672 1982 (UK)

Ulster Bank Media Relations

+353 (0) 87 77 39 750 (ROI)

19 February 2021

For the purpose of compliance with the Disclosure Guidance and Transparency Rules, this announcement also contains risk factors extracted from the Annual Report and Accounts 2020 in full unedited text. Page references in the text refer to page numbers in the Annual Report and Accounts 2020.

Principal Risks and uncertainties

Going concern uncertainties

As disclosed in note 1 to the accounts and the Going Concern section of the Report of the directors there are material uncertainties relating to the Group's ability to continue as a going concern. The most important of these uncertainties are summarised below.

Risks and uncertainties arising from NatWest Group's withdrawal from the Republic of Ireland

NatWest Group has announced its intention to begin a phased withdrawal from the Republic of Ireland (ROI) after undertaking a strategic review of the Group's business in ROI and concluding that Ulster Bank's business in ROI will not be in a position to achieve an acceptable level of sustainable returns over its planning horizon. NatWest Group's withdrawal from ROI is expected to take a number of years and may expose the Group's business to many risks and uncertainties that may have a material adverse effect on the Group's operating results, financial condition, outlook, prospects and ability to comply with its regulatory capital requirements. These risks and uncertainties may be accentuated by adverse colleague and customer reaction and press speculation about the Group's future. The Group's Board will review and consider these risks and uncertainties in seeking to achieve appropriate implementation of this phased withdrawal strategy.

Risks relating to potential transfers of the Group's business, assets and liabilities

As mentioned in note 32 to the accounts NatWest Group recently informed the Group's Board that, as a result of a strategic review, it is seeking a phased withdrawal from the Republic of Ireland (ROI) market. NatWest Group and the Bank have agreed a memorandum of understanding ('MOU') for the proposed sale of c. €4 billion of the Group's performing commercial loan book to AIB Group plc (the 'Proposed Sale'). The MOU is a non-binding preliminary agreement of intent and many important terms are to be agreed. Successful completion of the Proposed Sale is therefore subject to many risks and uncertainties of which many are beyond the control of UBIDAC Group and NatWest Group. These include: finalising commercial terms, further operational, IT and other due diligence, negotiating and executing definitive legal documentation, satisfying relevant conditions precedent, obtaining regulatory and other approvals, legislative changes and other transaction execution risks and uncertainties. Accordingly, the Proposed Sale may not be completed on acceptable terms as contemplated in the non-binding MOU, in the timescale envisaged, or at all.

As part of NatWest Group's phased withdrawal from ROI, the Group will explore other potential transfers of the Group's business, assets and liabilities. Whether any transfers are agreed will depend on a variety of factors, such as the willingness and ability of purchasers to complete the transfers on acceptable terms, including raising any necessary financing when needed; purchasers' technology and operational capability (including scaling of relevant platforms) to accept large volumes of customer switching, onboarding and continuing customer service; and obtaining any necessary legislative, regulatory or other approvals.

A phased withdrawal of NatWest Group from ROI, whether effected by the Proposed Sale, other business transfers, assets and liability transfers, or other mechanisms is likely to be highly complex from an IT and operational perspective with implementation to be spread over coming years. Changes may be required to the Group's business model and strategy and material execution, commercial, legal, IT and operational risks may be involved. Substantial effort, resource and expense may be needed to mitigate the manual and limited capacity and capability of existing customer account switching processes of the Group, any purchasers and other banks. Additional uncertainties include customer action or inaction, or the inability to obtain necessary approvals and/or support from government agencies, regulators, trade unions and/or other stakeholders resulting in additional cost, resource and delays, resulting in significantly increased costs beyond acceptable levels. The phased withdrawal, the Proposed Sale and any other transfers may also be subject to various internal and external factors and risks, including (but not limited to) market, regulatory, economic and political uncertainties. Successful implementation of the withdrawal, the Proposed Sale and any other transfers will also depend on how the Group is perceived by its customers, regulators, rating agencies, stakeholders and the wider market, the Group's ability to retain employees required to deliver the transition and its go-forward strategic priorities.

The Group's Board will review and consider these risks in seeking to achieve appropriate implementation of this phased withdrawal strategy.

Potential adverse impacts of uncertainties on the Group

The above-mentioned uncertainties relating to NatWest Group's phased withdrawal, the Proposed Sale and any other transfer of the Group's business, assets and liabilities may, therefore, materially and adversely affect the Group's business, results of operations, financial condition, regulatory compliance and outlook in many ways. These include (but are not limited to):

· potential damage to the Group's brand and reputation from press speculation, regulatory and other stakeholder scrutiny regarding its future;

· potential loss of customers, resulting in retail and commercial deposit outflows (or a failure to attract deposit inflows) and reduced revenues and liquidity;

· increased operating costs and losses during the phased withdrawal;

· increased people risk through the potential loss of key staff, loss of institutional knowledge, increased challenges of attracting and retaining colleagues, which, combined with the prolonged COVID-19 pandemic, may impact the Group's culture and morale;

· material and increased operational, IT system, culture, conduct, business and financial risks due to colleague and customer disengagement;

· the recognition of disposal losses as part of an orderly run-down of certain of the Group's loan portfolios which may be higher than anticipated;

· regulatory risk, relating to the need for the Group to remain compliant, including in relation to its prudential, conduct and other regulatory and corporate governance requirements;

· the potential early repayment of ECB funding and access to other Eurosystem funding arrangements;

· the diversion of management resources and attention away from day-to-day management of the Group; and

· potential diminished willingness of suppliers and other counterparties to supply and transact with the Group on preferential terms, or at all.

These risks and uncertainties may also jeopardise completion of the Proposed Sale or any other transfers, result in higher than expected operating costs, negatively impact the Group's products and services offering and competitive position, and may adversely impact the Group's ability to deliver its strategy.

The Group's Board will review and consider these risks and uncertainties in seeking to achieve appropriate implementation of this phased withdrawal strategy.

Risks of a smaller business

Completion of the Proposed Sale will result in the Group having a smaller business and significantly lower revenues. The Group's Board will review and consider all options in seeking to achieve appropriate implementation of the phased withdrawal strategy. These options may include, in addition to the Proposed Sale, the sale of other parts of the business to alternative single or multiple purchasers and/or a residual business or asset sale of any part of the business that is not otherwise disposed of. Accordingly, whether or not the Proposed Sale and any other sale are successfully completed, the size of the Group's business may challenge the ability to be a viable business in the medium term.

During the implementation of the phased withdrawal strategy the directors remain focused on supporting the Group's customers and colleagues through the current challenging economic conditions.

Risks and uncertainties arising from COVID-19 pandemic

In March 2020, the World Health Organization declared the spread of the COVID-19 virus a pandemic. Since then, many countries, including the Republic of Ireland, have periodically imposed strict social distancing measures, restrictions on non-essential activities and travel quarantines, in an attempt to slow the spread of the virus and reduce its impact.

The directors note that the global spread of COVID-19 and associated containment measures resulted in unprecedented, sharp and sudden impacts on economic activity across a wide range of countries, including Ireland. Impacts on some sectors and parts of the economy have been extreme at times.

Particular weakness in domestic-oriented sectors has been evident in a number of key metrics, including measures of demand and output (notably in hospitality, travel and leisure) and the labour market.

However, there are also important signs of relative resilience in overall Irish output and the housing market, aided by sizable and extensive policy supports and by the fact that the economy entered this episode in solid shape and with no signs of major imbalances in its overall underlying macro-financial position. Moreover, the shock to aggregate output has also been importantly cushioned by strength in some key multi-national dominated sectors, including pharmaceuticals/chemicals and ICT. Meanwhile, trends in house prices have also shown notable resilience, partly reflecting the fact that COVID-19 labour market impacts have been skewed towards younger age groups, and lower-paid sectors, with such groups less likely to be active in the home-buying market.

Whilst vaccination programmes are currently being deployed globally and underpin expectations around medium-term recovery prospects, these vaccines may ultimately fail to achieve sufficient levels of general population immunity. Therefore, significant uncertainties remain as to how long the COVID-19 pandemic will last. Subsequent waves of infection may result in the reintroduction of restrictions in affected countries or regions. Even when restrictions are relaxed, they may be re-imposed, potentially at short notice, if either levels of immunisation are insufficient or new strains of the COVID-19 virus or other diseases develop into new epidemics or pandemics.

The ultimate extent of the economic impact of the COVID-19 pandemic, and consequently the path and length of time required to achieve economic recovery, remains highly uncertain. In the short-term the COVID-19 pandemic has adversely affected the credit quality of many of the Group's borrowers. As a result, the Group has experienced elevated exposure to credit risk. Significant government and central bank mechanisms to support businesses and individuals, including various forms of financial assistance, as well as legal and regulatory initiatives, were introduced in response to the impact of the virus and associated containment measures. It is uncertain how long these initiatives will remain in place, how they may evolve in the future and to what extent the Group's customers may be negatively impacted when these initiatives are scaled back and ultimately ended. If borrowers default or suffer deterioration in credit, this would increase impairment charges and write-downs.

Furthermore, the ability of households to service their debts could be worsened by a period of high unemployment caused by the COVID-19 pandemic, particularly if prolonged. The Group's mortgage and wholesale property loans portfolio may also be subject to higher impairment charges as a result of the COVID-19 pandemic if volatility in the property market results in weakened property prices, particularly if default rates increase.

The medium and long-term implications of the COVID-19 pandemic for the Group's customers, the Irish and global economies and financial markets remain uncertain and may continue to have a material adverse effect on the Group's financial results and operations. If the Group experiences losses and a reduction in future profitability, this is likely to affect the recoverable value of fixed assets and deferred tax assets which may lead to further write-downs.

Risks and uncertainties arising from Brexit

The UK ceased to be a member of the EU and the European Economic Area ('EEA') on 31 January 2020 ('Brexit'), with the EU-UK Trade and Cooperation Agreement ('TCA') implemented on 1 January 2021. The TCA provides for free trade between the EU and UK, with zero tariffs and quotas on goods that satisfy rules of origin requirements. Simultaneously the Ireland/Northern Ireland Protocol was implemented, with Northern Ireland remaining in the EU single market for goods.

The long-term effects of Brexit on the Group's operating environment remain difficult to predict. Those effects may be impacted by wider global macro-economic trends and events, particularly COVID-19 pandemic related uncertainties, which may significantly impact the Group and its customers who are themselves dependent on trading with the UK or personnel from the UK. Equally, the long-term effects of Brexit may exacerbate the economic impacts of the COVID-19 pandemic on the Republic of Ireland, the rest of the EU/EEA and the UK.

Furthermore, significant uncertainty remains as to the extent to which UK law, under which the Group's parent operates, will diverge from EU/EEA laws, whether and what equivalence determinations will be made by the various regulators and therefore what respective legal and regulatory arrangements the Group will be subject to. The legal and political uncertainty and any new or amended rules, could have a significant adverse impact on the Group. This includes increases in operating, compliance and restructuring costs and increased impairments. There is potential for adverse impacts on capital requirements, the regulatory environment and tax implications and, as a result, the Group's profitability, competitive position, business model and product offering.

Related stress testing will continue to inform balance sheet management, including capital and liquidity assessments. Monitoring of loan performance remains elevated, with comprehensive early warning triggers in place, whilst sector specific risk appetite is assessed on a continual basis.

Additionally, the Group remains vulnerable to risks and uncertainty in the external economic environment, including persistent weakness in the global economy; escalation in global trade disputes; shifts in the international tax policy environment; persistently low or lower interest rates; global financial market volatility (including in euro area sovereign debt markets) linked to the effects of highly accommodative monetary policy settings in advanced economies; political and geopolitical instability and climate change.

Forward-looking statements

This document contains forward-looking statements such as statements that include, without limitation, the words 'expect', 'estimate', 'project', 'anticipate', 'commit', 'believe', 'should', 'intend', 'will', 'plan', 'could', 'probability', 'risk',  'target', 'goal', 'objective', 'may', 'endeavour', 'outlook', 'optimistic', 'prospects' and similar expressions or variations on these expressions. These statements concern or may affect future matters, such as UBIDAC's future economic results, business plans and strategies.  In particular, this document may include forward-looking statements relating to UBIDAC in respect of, but not limited to UBIDAC's future economic results, business plans and strategies. Forward-looking statements are subject to a number of risks and uncertainties that might cause actual results and performance to differ materially from any expected future results or performance expressed or implied by the forward-looking statements. Factors that could cause or contribute to differences in current expectations include, but are not limited to, the impact of the Covid-19 pandemic, future acquisitions or divestments, the outcome of legal, regulatory and governmental actions and investigations, legislative, political, fiscal and regulatory developments, accounting standards, competitive conditions, technological developments, interest and exchange rate fluctuations and general economic and political conditions. These and other factors, risks and uncertainties that may impact the above, and any forward-looking statement or actual results are discussed in UBIDAC's 2020 Annual Report and Accounts (including its Principal Risks and Uncertainties). The forward-looking statements contained in this document speak only as of the date of this document and does not assume or undertake any obligation or responsibility to update any of the forward-looking statements contained in this document, whether as a result of new information, future events or otherwise, except to the extent legally required.

Legal Entity Identifier: UBIDAC - 635400KQIMALJ4XLAD78