FAP.L Regulatory News (FAP)

17 February 2023

Ulster Bank Ireland DAC

Ulster Bank - Annual Report and Accounts and Pillar 3 Report 2022

Ulster Bank Ireland DAC ("UBIDAC") today announces the publication of its 2022 Annual Report and Accounts.

Ulster Bank Ireland Designated Activity Company ('UBIDAC', the 'Bank' or the 'Company') is a wholly-owned subsidiary of NatWest Holdings Limited ('NatWest Holdings'). The ultimate holding company is NatWest Group plc ('NWG' or the 'ultimate holding company'). 

The 'Group' or 'UBIDAC Group' comprises UBIDAC and its subsidiary and associated undertakings.

The 2022 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 2022 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) 20 7672 1758 (UK)

17 February 2023

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 assessment which are contained in the Annual Report and Accounts 2022, in full unedited text. Page and note references in the text refer to page and note numbers in the Annual Report and Accounts 2022.

Principal risks and uncertainties

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

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

The Bank has entered into legally binding agreements for the sale of the majority of its performing Commercial and Personal loan books (the 'Sales Transactions'). During the financial year and up to the date of this report, significant progress has been made with respect to these transactions, with material portions of agreed assets having been successfully transferred. Completion of the remaining elements of the Sales Transactions is subject to a number of risks and uncertainties some of which are beyond the control of the Group. These include: satisfying relevant conditions precedent, executing transactions in a timing and manner aligned to regulatory expectations and other transaction execution risks and uncertainties, including purchasers' technology and operational capability to accept large volumes of customer onboarding (including scaling of relevant platforms). Accordingly, the Sales Transactions may not complete on acceptable terms in the timescale envisaged or without incurring additional costs.

The Bank also continues to explore potential transfers of its remaining business and assets. Whether any transfers are agreed and ultimately completed 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 to accept large volumes of customer onboarding (including scaling of relevant platforms) and continuing customer service; and obtaining any necessary regulatory or other approvals.

Whilst significant progress has been achieved, the Group's withdrawal from the market is expected to take a further number of years and will continue to expose its business to risks and uncertainties, albeit reducing in significance over time. These remaining risks include reputation, costs, people, operational, pricing outcomes on remaining non-contracted loan sales, regulatory compliance, management bandwidth and counterparty and supplier support as the Group completes its withdrawal from the market.

The Board will 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.

Potential adverse impact of continued economic uncertainties on phased withdrawal implementation

Uncertainties and volatile economic conditions associated with sustained inflationary pressures and rising interest rates, the Russian invasion of Ukraine, supply chain frictions and the residual effects of COVID-19, may have a significant impact on the cost of implementation of the remainder of the Group's phased withdrawal strategy. Additionally, the risk of continued high inflation combined with labour market constraints and associated cost of living risks may adversely impact the credit quality of the Group's remaining loan portfolio, resulting in additional impairment charges and/or adversely impacting the number of potential counterparties interested in buying the remaining assets not yet agreed for sale, or the value realised for those assets.

Risks arising from customer remediation in respect of legacy issues

In 2021, the Group 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 High Court. The outcome of that challenge on those and related complaints is uncertain and may have a materially adverse impact. Furthermore, there is a risk that throughout implementation of the phased withdrawal process further issues may be identified that require remediation.

Risks arising from the implementation of EU Intermediate Parent Undertaking requirements

Under Article 21b of the EU Capital Requirements Directive, NatWest Group, as a third-country group with two or more subsidiary banking undertakings established in the EU, must create a single (or in certain circumstances, with European Central Bank permission, dual) intermediate parent undertaking (IPU) structure. The implementation of this requirement, by the compliance date of 30 December 2023, creates additional operational risk for the Group due to the parallel implementation of the phased withdrawal strategy. The Board is supporting NatWest Group in its IPU implementation and regularly assesses its impact on the phased withdrawal programme.

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; inflation risks; global financial market volatility; the impact of future epidemics or pandemics 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, 11, 20 and 30 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 2022, evidenced by the Liquidity Coverage Ratio (LCR) of 251% at 31 December 2022 (2021 - 167%). The Group's primary source of liquidity is from Personal and Commercial customer deposits, supplemented when required by intergroup borrowing. The Group's assets as at 31 December 2022 contained €3.8 billion of high quality liquid assets (2021 - €7.5 billion). In addition, this is supported by a €7 billion contingent liquidity agreement with National Westminster Bank Plc (NatWest Bank) (2021 - €1 billion), of which €3 billion was drawn down as at 31 December 2022 (2021 - nil). A notable dynamic in the Bank's liquidity position during 2022 has been the outflow of €15 billion of Personal and Commercial deposits, offset by proceeds received on loan sales and the respective timing of these flows. The Bank has utilised its contingent liquidity facility with NatWest Bank to manage the liquidity consequences of these flows and maintain a prudent level of head room to internal risk appetite and minimum regulatory requirements.

The Group's capital position remained strong during 2022, as evidenced by the CET1 ratio of 38.6% at 31 December 2022 (2021 - 27.8%).

Following the legally binding agreements for the sale of the majority of the Commercial and Personal loan books, CCPC approval has been obtained in respect of these transactions. Significant tranches of assets have already been transferred to the purchasers and it is expected that the remainder of the assets comprising these transactions will transfer during 2023.

A widespread media campaign and direct communications to customers advising of the closure of Ulster Bank Ireland was initiated during the financial year. The issuing to customers of six month notice of closure letters for substantially all current and deposit accounts was completed in October 2022 and a significant number of customers have already chosen a new banking provider and moved their accounts to that new provider. In November 2022 the Bank initiated the process of freezing accounts of customers that had received their six month closure notice in April but had not yet taken action to move and close their account. The remaining branch locations not covered in the PTSB sale transaction are planned for closure in April 2023.

The directors have considered the Group's capital and liquidity position as set out above and the results of stressed liquidity scenarios. On those bases the directors have concluded that the Group has the ability to continue as a going concern for the foreseeable future.

However, within the next twelve months, virtually all new lending is expected to cease and virtually all current and deposit accounts are expected to be closed. On this basis, the directors are of the opinion that they have demonstrated their intention to cease trading. Therefore, in accordance with IAS 1, the financial statements have been prepared on an other than going concern basis. The directors currently have no intention to liquidate the Company.

The adoption of the other than going concern basis of preparation has not resulted in the departure from any of the recognition or measurement criteria of IFRS, nor have any assets or liabilities been reclassified as a result.

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: 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; continued economic uncertainties on phased withdrawal implementation; and risks arising from the implementation of EY Intermediate Parent Undertaking Requirements and risks and uncertainties arising from other factors such as inflation, monetary and fiscal policies and 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,. 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 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 and sustainability-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 2022 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