FAP.L Regulatory News (FAP)

18 February 2022

Ulster Bank Ireland DAC

Ulster Bank - Annual Report and Accounts and Pillar 3 Report 2021

Ulster Bank Ireland DAC ("UBIDAC") today announces the publication of its 2021 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 2021 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 2021 Pillar 3 report which is also available on our website.

Both reports are also published on UBIDAC's website at https://digital.ulsterbank.ie/globals/about-us/corporate-information/financial-results.html

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)

18 February 2022

For the purpose of compliance with the Disclosure Guidance and Transparency Rules, this announcement also contains extracts from the Report of the Directors on Principal Risks and Uncertainties and Going Concern which are contained in the Annual Report and Accounts 2021, in full unedited text. Page and note references in the text refer to page and note numbers in the Annual Report and Accounts 2021.

Principal risks and uncertainties

Set out below are certain risks and uncertainties which may adversely affect the Group.

Risks and uncertainties arising from the Group's withdrawal from the market 

The Group's withdrawal from the market is expected to take a number of years and may expose its business to many risks and uncertainties that may have a material adverse effect on its operating results, financial condition, outlook, prospects and ability to comply with its regulatory capital requirements. These risks and uncertainties may be accentuated by colleague and customer reaction and external speculation about the Group's future. The Board will continue to review and consider these risks and uncertainties in seeking to achieve appropriate implementation of the phased withdrawal strategy. The Group's capital and liquidity positions remain strong to underpin this strategy.

Risks relating to potential transfers of the Group's businesses and assets

The Bank has entered into legally binding agreements for the proposed sale of the majority of the Group's performing commercial loan book to Allied Irish Banks p.l.c. and for a material part of the Group's personal banking business to Permanent TSB Group Holdings plc (the 'Proposed Sales'). Successful completion of the Proposed Sales remains subject to a number of risks and uncertainties of which some are beyond the control of the Group. These include: satisfying relevant conditions precedent, obtaining regulatory and other approvals, potential legislative changes and other transaction execution risks and uncertainties, including purchasers' technology and operational capability (including scaling of relevant platforms) to accept large volumes of customer onboarding. Accordingly, the Proposed Sales may not be completed on acceptable terms in the timescale envisaged, or at all.

As part of the Group's phased withdrawal from the market, it will explore other potential transfers of its business and assets. 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 onboarding and continuing customer service; and obtaining any necessary legislative, regulatory or other approvals.

A phased withdrawal of the Group from the market, whether effected by the Proposed Sales, other business transfers, asset transfers, or other mechanisms, is likely to be highly complex from an IT and operational perspective with full implementation to be spread over the 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 migration processes within the industry and any customer onboarding capability issues of purchasers and other banks.

Additional uncertainties include customer action or inaction, 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 Sales 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 Sales 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 strategic plans.

The Board will review and consider these risks in seeking to achieve appropriate implementation of the phased withdrawal strategy.

Potential adverse impacts of uncertainties on the Group

The above-mentioned uncertainties relating to the Group's phased withdrawal, the Proposed Sales and any other transfer of the Group's business and assets may, therefore, materially and adversely affect the Group's business, results of operations, financial condition, regulatory compliance and plans in many ways. These adverse impacts 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;

- increased operating costs and losses during the phased withdrawal;

- adverse impact on the Group's culture and morale from increased people risk through the potential loss of key staff, loss of institutional knowledge and increased challenges of attracting and retaining colleagues;

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

- the impact of disposal losses as part of an orderly rundown 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 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 Sales or any other transfers, result in higher than expected operating costs, negatively impact the Group's products and services offering and may adversely impact the Group's ability to deliver its strategy.

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

Risks arising from customer remediation in respect of legacy issues

The Group has materially concluded actions required as part of the CBI's Tracker Mortgage Examination. However, some of the Bank's customers have lodged tracker mortgage complaints with the Financial Services and Pensions Ombudsman (FSPO). The Bank is challenging three recent FSPO adjudications in the Irish High Court. The outcome and impact of that challenge on those and related complaints is uncertain but may be material.

Furthermore, there is a risk that throughout implementation of the phased withdrawal process further issues may be identified that require remediation.

Risks and uncertainties arising from COVID-19 pandemic

In many countries, including Ireland, the COVID-19 pandemic has, at times, resulted in the imposition of strict social distancing measures, restrictions on non-essential activities and travel quarantines, in an attempt to slow the spread, and reduce the impact, of COVID-19.

Despite widespread geographical deployment of COVID-19 vaccination programmes, the proliferation of COVID-19 variants continues to impact the Irish and global economies. Further waves of infection or the spread of new strains may result in renewed restrictions in affected countries and regions. As a result, significant uncertainties remain as to how long the impact of the COVID-19 pandemic will last, and how it will continue to affect the global economy.

In response to the COVID-19 pandemic and associated containment measures, unprecedented 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. However, uncertainty remains as to the impact of the tapering or ending of these schemes and the repayment of the related loans on customers, the economy and the Group.

Moreover, it is unclear as to how any secondary impacts and risk-related factors, such as rising interest rates and inflation, may affect the Group's business and performance.

The COVID-19 pandemic has prompted many changes that may prove to be permanent shifts in customer behaviour and economic activity, such as changes in spending patterns and more working from home. These changes may have long-lasting impacts on the economic environment, including asset values.

Uncertainties relating to the COVID-19 pandemic have made reliance on analytical models more complex and may result in uncertainty impacting the risk profile of the Group and/or that of the wider banking industry. The medium and long-term implications of the COVID-19 pandemic for the Group's customers, the Irish housing market, and the Irish and global economies and financial markets remain uncertain.

Risks and uncertainties arising from Brexit

The EU-UK Trade and Cooperation Agreement ('TCA') was implemented on 1 January 2021. The TCA provides for free trade in goods between the EU and UK, with zero tariffs and quotas on goods that satisfy rules of origin requirements. Simultaneously the Northern Ireland Protocol was implemented, with Northern Ireland remaining in the EU single market for goods.

The future 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 future effects of Brexit may exacerbate the economic impacts of the COVID-19 pandemic on 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 also potential for adverse impacts on capital requirements, the regulatory environment and taxation and, as a result, the Group's business and performance.

Other risks and uncertainties

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; inflation risks; global financial market volatility (including in euro area sovereign debt markets) linked to the effects of highly accommodative monetary policy settings in advanced economies and climate change. Furthermore, unfavourable political, military or diplomatic events, including armed conflict, state and privately sponsored cyber and terrorist acts or threats, and the responses to them by governments and markets, could negatively affect the Group.

Going concern

The Group's business activities, together with the factors likely to affect its future development, performance and position, including potential risks and uncertainties, are set out in this report on pages 4 to 7.

The financial position of the Group, its cash flows, liquidity position, capital and funding sources are set out in the financial statements. Notes 10, 22 and 32 to the accounts include the Group's objectives, policies and processes for managing its capital; its financial risk management objectives; details of its financial instruments and hedging activities; and its management of market, credit and liquidity risks.

The Group's liquidity position remained strong during 2021, evidenced by the Liquidity Coverage Ratio (LCR) of 167% at 31 December 2021 (2020 - 250%). The primary driver of the reduction in the LCR ratio is the early maturity of the Group's TLTRO 3 borrowing of €3.1 billion. The Group's primary source of liquidity is from personal and commercial customer deposits. The Group's assets at 31 December 2021 contain €7.5 billion of high quality liquid assets (2020 - €8.6 billion). In addition, this is supported by contingent liquidity of €1.9 billion at 31 December 2021 (2020 - €3.0 billion). Furthermore, on 15 February 2022 the Group entered into a €9.5 billion contingent liquidity agreement with National Westminster Bank Plc, replacing a pre-existing contingent liquidity facility of €1 billion.

The Group's capital position remained strong during 2021, as evidenced by the CET1 ratio of 27.8% at 31 December 2021 (2020 - 28.1%).

Following the legally binding agreements for the sale of a significant portion of the Commercial and Personal loan books, the future scale and focus of the Group's operations will be materially altered on completion of these transactions. Successful completion of the Proposed Sales remains subject to a number of risks and uncertainties of which some are beyond the control of the Group. These include satisfying relevant conditions precedent, obtaining regulatory, CCPC and other approvals, potential legislative changes and other transaction execution risks and uncertainties. Accordingly, the Proposed Sales may not be completed on acceptable terms in the timelines envisaged or at all.

The directors have considered the Group's capital and liquidity position as set out above and the results of stressed liquidity scenarios and concluded that the Group has the ability to continue as a going concern for the foreseeable future. The Group continues to service existing customers across its full product range and continues to write certain new business to existing customers. However, there are material uncertainties as to the outcome and timing of the Proposed Sales which will impact the timing of future decisions in respect of the Group's business which may have a bearing on the going concern assumption. Notwithstanding these material uncertainties the directors are of the opinion that it remains appropriate to prepare the accounts on a going concern basis.

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, including its: phased withdrawal from the market; potential transfers of UBIDAC's business and assets; potential adverse impacts of uncertainties on UBIDAC; risks arising from customer remediation in respect of legacy issues; and risks and uncertainties arising from COVID-19 pandemic as well as Brexit. 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 and the impact of climate-related risks. 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 2021 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