UNITED STATES
                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

                    FORM 6-K

                        Report of Foreign Private Issuer


                         Pursuant to Rule 13a-16 or 15d-16
                       under the Securities Exchange Act of 1934


                     For the date of 2 March, 2009

                      ALLIED IRISH BANKS, public limited company
   
                      Bankcentre, Ballsbridge, Dublin 4, Republic of Ireland
 


Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

                         Form 20-F..X... Form 40-F.....

Indicate by check mark whether the registrant by furnishing the information contained in this Form is also thereby furnishing the information to the Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of 1934.

                               Yes ..... No ..X...

If "Yes" is marked, indicate below the file number assigned to the registrant in connection with Rule 12g3-2(b): 82- ________

 

Allied Irish Banks, p.l.c. ("AIB") [NYSE:AIB]  Part 2

Notes to the accounts
 

1 Basis of Presentation
 

(a) Accounting Policies

Except as noted, there have been no changes to the accounting policies as described on pages 61 to 78 in the 2007 Annual Report.

On 13 October 2008, in response to the turmoil on world financial markets, the IASB amended IAS 39 'Financial Instruments: Recognition and Measurement' to allow for the reclassification of non-derivative financial assets out of the 'fair value through profit or loss category' in rare circumstances. The IASB defined rare circumstances as including the current credit crisis and related market dislocation. This amendment allowed the reclassification to be applied retrospectively to 1 July 2008, provided it had been made before 1 November 2008.Any reclassifications made in periods beginning on or after 1 November 2008 are dealt with prospectively.

Since certain financial assets held for trading by the Group at 1 July 2008 were no longer held for the purpose of selling or repurchasing in the near term due to inactive markets and illiquidity, the Group adopted this amendment and reclassified € 6,104m of trading portfolio financial assets to financial investments available for sale. If this reclassification had not been made, a negative fair value movement of € 236m would have been recognised in the income statement. This reclassification has resulted in the recognition of the fair value movement in equity. Further analysis of this reclassification is set out in note 16.
 

(b) Annual Report and Accounts

The financial information presented herein does not amount to statutory financial statements. The Annual Financial Report for the year ended 31 December 2008 will be available on the Internet website http://www.aibgroup.com/investorrelations on 30 March 2009.The Annual Financial Report for the year ended 31 December 2008 will be filed in the Companies Registration Office with the annual return. The Auditors have reported on the audited financial statements; their report was unqualified and did not contain a statement under section 193 of the Companies Act 1990. 
 

A copy of this Preliminary announcement is available on the Internet website http://www.aibgroup.com/investorrelations
 

2 Segmental information

For management and reporting purposes, the activities of AIB Group are organised into four operating divisions supported by Group, which includes Operations and Technology.
 

AIB Bank ROI:  Retail and commercial banking operations in the Republic of Ireland, Channel Islands and the Isle of Man, AIB Finance and Leasing, AIB Card Services, Wealth Management and its share of Hibernian Life Holdings Limited, AIB's venture with Hibernian Life and Pensions Limited.
 

Capital Markets:  AIB's corporate banking, treasury and investment banking operations principally in Ireland, Britain, Poland and the US, together with offices in Frankfurt, Paris, Luxembourg, Budapest, Zurich, Toronto and Sydney.
 

AIB Bank UK:  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).
 

Central and Eastern Europe Division(1) :  This division comprises: Bank Zachodni WBK S.A. ("BZWBK"), in which AIB has a 70.5% shareholding, together with its subsidiaries and associates which operate in Poland; Bulgarian American Credit Bank, a specialist provider of secured finance to small and medium sized companies in Bulgaria, in which AIB has a 49.99% shareholding; and AmCredit, which is a mortgage business in Lithuania, Latvia and Estonia.
 

Group:  Includes interest income earned on capital not allocated to divisions, the funding of certain acquisitions, hedging in relation to the translation of foreign locations' profit, unallocated costs of central services, AIB's share of approximately 24.2% in M&T Bank Corporation and profit on disposal of property.
 
 

(1) During the second half of 2008, the Central & Eastern Europe (CEE) division was formed bringing together the Group's interests in Poland, Bulgaria and the Baltic region.
 

Notes to the accounts
 

2 Segmental information  (continued)
 
 

           

2008 

AIB Bank 

ROI 

€  m

Capital Markets 

€  m 

AIB Bank UK

€  m 

Central & 

Eastern Europe 

€  m 

Group 

€  m 

Total 

€  m 

Operations by business segments 

            

Net interest income 

1,705 

1,064 

591 

437 

70 

3,867 

Other income 

478 

94 

135 

390 

104 

1,201 

Total operating income 

2,183 

1,158 

726 

827 

174 

5,068 

Administrative expenses 

  

953 

    

376 

    

312 

    

442 

    

104 

    

2,187 

Impairment and amortisation of 

                                  

   intangible assets 

  

17 

    

9 

    

-

    

26 

    

26 

    

78 

Depreciation of property, plant 

                                  

   and equipment 

  

32 

    

7 

    

9 

    

24 

    

20 

    

92 

Total operating expenses 

1,002 

392 

321 

492 

150 

2,357 

  

Operating profit before provisions 

1,181 

766 

405 

335 

24 

2,711 

  

Provisions for impairment of loans 

              

   and receivables 

1,298 

160 

257 

107 

-

1,822 

  

Provisions for liabilities and commitments 

-

(4) 

-

2 

-

(2) 

  

Amounts written off financial 

              

   investments available for sale 

4 

25 

-

-

-

29 

  

Operating (loss)/profit 

(121) 

585 

148 

226 

24 

862 

  

Associated undertakings 

(5) 

-

2 

(54) 

94 

37 

  

Profit on disposal of property 

6 

-

2 

2 

2 

12 

  

Construction contract income 

-

-

-

-

12 

12 

  

Profit on disposal of businesses 

68 

-

38 

-

-

106 

  

(Loss)/profit before taxation -

              

continuing operations 

(52) 

585 

190 

174 

132 

1,029 

  

Other amounts 

              

Loans and receivables to customers 

75,033 

26,120 

19,551 

8,514 

271 

129,489 

  

Interests in associated undertakings 

251 

6 

3 

174 

1,534 

1,968 

  

Total assets 

80,788 

60,477 

22,036 

12,368 

6,474 

182,143 

  

Customer accounts 

42,295 

26,536 

13,539 

10,234 

-

92,604 

  

Total liabilities (1) 

49,398 

89,827 

14,776 

11,228 

6,632 

171,861 

  

Total risk weighted assets (4) 

63,145 

37,812 

20,970 

10,415 

1,553 

133,895 

  

Ordinary shareholders' equity (1) 

3,981 

2,384 

1,322 

656 

98 

8,441 

  

Capital expenditure 

89 

24 

5 

79 

93 

290 

  

Other significant non-cash expenses (2) 

(6) 

(5) 

6 

2 

5 

2 

  


Notes to the accounts
 

2 Segmental information  (continued)
 

           

2007 
 

AIB Bank 

ROI 

€ m

Capital Markets

€  m 

AIB Bank UK 

€ m 

Central & Eastern Europe 

€ m 

Group 

€ m 

Total 

€ m 

Operations by business segments 

            

Net interest income 

1,777 

586 

685 

308 

62 

3,418 

Other income 

490 

389 

156 

371 

44 

1,450 

Total operating income 

2,267 

975 

841 

679 

106 

4,868 

Administrative expenses 

  

1,036 

    

446 

    

359 

  

377 

    

158 

    

2,376 

Amortisation of intangible assets 

  

16 

    

6 

    

1 

  

18 

    

19 

    

60 

Depreciation of property, plant 

                                

   and equipment 

  

36 

    

8 

    

11 

  

15 

    

15 

    

85 

Total operating expenses 

1,088 

460 

371 

410 

192 

2,521 

Operating profit/(loss) before provisions 

1,179 

515 

470 

269 

(86) 

2,347 

Provisions for impairment of loans 

            

   and receivables 

104 

(18) 

18 

2 

-

106 

Provisions for liabilities and commitments 

-

2 

-

(1) 

(9) 

(8) 

Amounts written off 

            

  financial investments available for sale 

-

1 

-

-

-

1 

Operating profit/(loss) 

1,075 

530 

452 

268 

(77) 

2,248 

Associated undertakings 

7 

-

-

1 

120 

128 

Profit on disposal of property 

12 

-

-

-

64 

76 

Construction contract income 

-

-

-

-

55 

55 

Profit/(loss) on disposal of businesses 

-

2 

-

-

(1) 

1 

Profit before taxation -

            

   continuing operations 

1,094 

532 

452 

269 

161 

2,508 

Other amounts 

            

Loans and receivables to customers 

71,717 

25,387 

23,726 

6,638 

135 

127,603 

Interests in associated undertakings 

273 

4 

-

4 

1,401 

1,682 

Total assets 

78,241 

57,753 

24,946 

10,106 

6,816 

177,862 

Customer accounts 

41,933 

16,715 

14,460 

8,200 

-

81,308 

Total liabilities (1) 

48,270 

84,034 

15,306 

9,034 

10,040 

166,684 

Total risk weighted assets (4) 

63,771 

41,188 

23,880 

7,582 

2,965 

139,386 

Ordinary shareholders' equity (1) 

4,269 

2,757 

1,598 

508 

198 

9,330 

Capital expenditure 

116 

28 

9 

41 

72 

266 

Other significant non-cash expenses (2) 

17 

10 

9 

3 

4 

43 


Notes to the accounts
 

2 Segmental information  (continued)
 
 

           

2008 
 

Republic of 

Ireland 

€ m 

United Kingdom

€ m 

Poland


€ m 

United 

States of America
 

€ m 

Rest of 

the world 

€ m 

Total 

€ m 

Operations by geographical segments (3 )  

            

Net interest income 

2,568 

714 

475 

76 

34 

3,867 

Other income 

525 

181 

447 

39 

9 

1,201 

Total operating income 

3,093 

895 

922 

115 

43 

5,068 

Administrative expenses 

  

1,326 

    

370 

    

442 

    

25 

    

24 

    

2,187 

Impairment and amortisation of 

                                  

   intangible assets 

  

49 

    

2 

    

8 

    

-

    

19 

    

78 

Depreciation of property, plant 

                                  

   and equipment 

  

56 

    

10 

    

24 

    

1 

    

1 

    

92 

Total operating expenses 

1,431 

382 

474 

26 

44 

2,357 

Operating profit/(loss) before provisions 

1,662 

513 

448 

89 

(1) 

2,711 

Provisions for impairment of loans 

            

   and receivables 

1,341 

362 

98 

12 

9 

1,822 

Provisions for liabilities and commitments 

(3) 

(1) 

2 

-

-

(2) 

Amounts written off financial investments 

            

   available for sale 

18 

4 

-

7 

-

29 

Operating profit/(loss) 

306 

148 

348 

70 

(10) 

862 

Associated undertakings 

(6) 

3 

-

94 

(54) 

37 

Profit on disposal of property 

8 

2 

2 

-

-

12 

Construction contract income 

12 

-

-

-

-

12 

Profit on disposal of businesses 

106 

-

-

-

-

106 

Profit/(loss) before taxation - 

            

continuing operations 

426 

153 

350 

164 

(64) 

1,029 

Other amounts 

            

Loans and receivables to customers 

90,788 

25,573 

8,427 

3,352 

1,349 

129,489 

Interests in associated undertakings 

257 

3 

11 

1,534 

163 

1,968 

Total assets 

128,428 

30,918 

14,629 

6,825 

1,343 

182,143 

Customer accounts 

59,653 

20,656 

10,239 

1,936 

120 

92,604 

Total liabilities (1) 

115,386 

28,780 

12,382 

14,756 

557 

171,861 

Total risk weighted assets (4) 

91,804 

23,627 

10,869 

5,625 

1,970 

133,895 

Ordinary shareholders' equity (1) 

5,228 

1,499 

819 

886 

9 

8,441 

Capital expenditure 

202 

7 

79 

1 

1 

290 


Notes to the accounts
 

2 Segmental information  (continued)
 

           

2007
 

Republic of Ireland € m

United Kingdom
 
€ m

Poland
 
 
€ m

United
States of America
€ m

Rest of
the world
 
€ m

Total
 
 
€ m

Operations by geographical segments (3)

            

Net interest income

2,145

857

343

56

17

3,418

Other income

684

265

446

43

12

1,450

Total operating income

2,829

1,122

789

99

29

4,868

Administrative expenses

  

1,502

    

439

    

384

    

39

    

12

  

2,376

Amortisation of intangible assets

  

41

    

1

    

18

    

-

    

-

  

60

Depreciation of property, plant

                                

and equipment

  

58

    

11

    

15

    

1

    

-

  

85

Total operating expenses

1,601

451

417

40

12

2,521

Operating profit before provisions

1,228

671

372

59

17

2,347

Provisions for impairment of loans

            

and receivables

107

(3)

2

-

-

106

Provisions for liabilities and commitments

(6)

(1)

(1)

-

-

(8)

Amounts written off financial investments

            

available for sale

1

-

-

-

-

1

Operating profit

1,126

675

371

59

17

2,248

Associated undertakings

7

-

1

120

-

128

Profit on disposal of property

76

-

-

-

-

76

Construction contract income

55

-

-

-

-

55

Profit/(loss) on disposal of businesses

(1)

2

-

-

-

1

Profit before taxation –

            

continuing operations

1,263

677

372

179

17

2,508

Other amounts

            

Loans and receivables to customers

85,706

31,683

6,638

2,583

993

127,603

Interests in associated undertakings

277

-

4

1,401

-

1,682

Total assets

124,265

35,337

12,152

5,056

1,052

177,862

Customer accounts

50,024

22,146

8,224

914

-

81,308

Total liabilities (1)

111,542

35,314

10,259

9,212

357

166,684

Total risk weighted assets (4)

95,810

26,727

11,804

3,722

1,323

139,386

Ordinary shareholders’ equity (1)

6,413

1,789

790

249

89

9,330

Capital expenditure

210

10

41

1

4

266


(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 ordinary shareholders' equity or liabilities.

(2)  Comprises share based payments expense.

(3)  The geographical distribution of profit before taxation is based primarily on the location of the office recording the transaction.

(4)  Risk weighted assets at 31 December 2008 are calculated under Basel II, while risk weighted assets at 31 December 2007 are calculated under Basel I.

 

Notes to the accounts
 

2 Segmental information  (continued)

Gross revenue by business segment
 

             

2008 
 

AIB Bank 

ROI 

€ m

Capital Markets 

€ m 

AIB Bank UK 

€ m 

Central & 

Eastern Europe 

€ m 

Group 

€ m 

Eliminations 

€ m 

Total 

€ m 

External customers Inter-segment revenue 

5,087 

3,308 

3,534 

3,702 

1,715 

953 

1,171 

174 

194 

354 

-

(8,491) 

11,701
-

Total gross revenue 

8,395 

7,236 

2,668 

1,345 

548 

(8,491) 

11,701 
             

2007

External customers Inter-segment revenue 

4,500 

2,733 

3,516 

3,178 

2,017 

913 

869 

75 

217 

78 

-

(6,977) 

11,119
-

Total gross revenue 

7,233 

6,694 

2,930 

944 

295 

(6,977) 

11,119 


Gross revenue from external customers represents: interest and similar income; dividend income; fee and commission income; net trading income; other operating income; profit on disposal of property; construction contract income; and profit on disposal of businesses. The amounts relate to continuing operations only.
 

 

2008 

2007 

3 Interest and similar income 

€ m 

€ m 

Interest on loans and receivables to banks 

420 

518 

Interest on loans and receivables to customers 

8,336 

7,408 

Interest on trading portfolio financial assets 

200 

393 

Interest on financial investments available for sale 

1,246 

1,021 

Interest on financial investments held to maturity 

26 

-
 

10,228

9,340 


Interest income in 2008 includes a charge of € 97m (2007: a charge of € 74m) removed from equity in respect of cash flow hedges.

 

2008 

2007 

4 Interest expense and similar charges 

€ m 

€ m 

Interest on deposits by banks 

1,380 

1,585 

Interest on customer accounts 

2,867 

2,349 

Interest on debt securities in issue 

1,865 

1,736 

Interest on subordinated liabilities and other capital instruments 

249 

252 
 

6,361 

5,922 


Interest expense in 2008 includes a credit of € 35m (2007: a credit of € 25m) removed from equity in respect of cash flow hedges.
 

5 Dividend income

The dividend income relates to income from equity shares held as financial investments available for sale.
 

6 Net fee and commission income 

€ m 

€ m 

Fee and commission income: 

    

Retail banking customer fees 

696 

846 

Credit related fees 

138 

127 

Asset management & investment banking fees 

221 

308 

Brokerage fees 

70 

116 

Insurance commissions 

58 

56 
 

1,183 

1,453 

Fee and commission expense (1) 

(142) 

(197) 
 

1,041

1,256 


(1) Includes an amount of € 28m in relation to the Irish Government guarantee scheme.

 

Notes to the accounts
 

7 Net trading income
 

 

2008

2007 
 

€ m

€ m 

Foreign exchange contracts 

(46) 

113 

Debt securities and interest rate contracts 

(15) 

(69) 

Equity securities and index contracts 

(12) 

30 
 

(73) 

74 


The total hedging ineffectiveness on cash flow hedges credited/(charged) to the income statement amounted to € 8m (2007: a charge of € 13m) and is included in net trading income.
 
 

8 Other operating income 

2008 

€ m 

2007 

€ m 

Profit on available for sale debt securities 

71 

3 

Profit on available for sale equity shares 

75 

49 

Miscellaneous operating income (1) 

60 

37 
 

206 

89 


(1) Includes an amount of € 5m (2007: € 2m) in respect of foreign exchange gains and losses.
 

9 Administrative expenses 

2008

 € m  

2007 

€ m 

Personnel expenses 

  

   Wages & salaries 

1,105 

    

1,206 

   Share-based payment schemes 

2 

    

43 

   Retirement benefits 

112 

    

158 

   Social security costs 

132 

    

135 

   Other personnel expenses 

61 

    

73 
 

1,412

1,615 

General and administrative expenses 

775

761 
 

2,187

2,376 


10 Profit on disposal of property

 

2008

The sale of properties which were surplus to business requirements gave rise to a profit on disposal of € 10m. In addition, the Group continued with its sale and leaseback programme announced in 2006 and 2 properties were sold giving rise to a profit before tax of € 2m (€ 1m after tax).These leases qualify as operating leases.
 

2007

The sale of properties which were surplus to business requirements gave rise to a profit on disposal of € 12m. In addition the Group continued with its sale and leaseback programme announced in 2006 and 22 properties were sold giving rise to a profit before tax of € 64m (€ 58m after tax).These leases qualify as operating leases.

 

Notes to the accounts
 

11 Construction contract income
 

 

2008 

€ m

2007 

€ m 

Construction revenue 

17 

101 

Construction expense 

(5) 

(46) 
 

12

55 


In 2005, AIB sold land at its Bankcentre headquarters to a syndicate of investors, the Serpentine Consortium. The consortium outsourced the construction of a new development on the above land to Blogram Limited, a subsidiary of Allied Irish Banks, p.l.c., on a fixed price contract basis. Practical completion of the building was achieved on 1 October 2007. Total consideration amounted to € 363m and was paid in full by the Serpentine Consortium by 31 December 2007 (2006: € 196.5m was due from the consortium). As at 31 December 2008, 99.94% of construction profit was recognised in the income statement (2007: 97.06%). Construction contract income net of tax is € 11m (2007:€ 48m).

Dohcar Limited, a subsidiary of Allied Irish Banks, p.l.c., contracted with the Serpentine Consortium to lease the property on completion at an initial rent of € 16.1m per annum for a period of 31 years with a break clause at year 23.

The nature of this transaction, which includes the sale of land, an agreement to construct a building and an agreement to lease the building represented a linked transaction and met the definition under IFRS of a sale and leaseback. Because the significant income from the transaction arises from the construction contract, the income is recognised in accordance with IAS 11 'Construction Contracts'.
 

12 Profit on disposal of businesses

2008

In January 2008, a joint venture arrangement with First Data Corporation was finalised. This arrangement involved the disposal of the Group's merchant acquiring businesses which comprised property, plant and equipment amounting to € 3 million and merchant contracts which are intangible assets and had not been recorded in the books due to IFRS transitional rules. These assets were acquired by a joint venture group operating under the name AIB Merchant Services in which AIB Group holds a 49.9% share with First Data Corporation holding 50.1%.The transaction gave rise to a profit on disposal of €106 million before tax (tax charge: € Nil). AIB is accounting for its interest in the joint venture as an associate and recognised € 8 million profit after tax in the income

statement in the period.
 

2007

The profit on disposal of businesses in 2007 includes the final accrual of € 2m (tax charge € 0.6m) arising from the sale of the Govett business in 2003.
 
 

   

2008 

2007 

13 Income tax expense  - continuing operations

  

€ m 

€ m 

Allied Irish Banks, p.l.c. and subsidiaries

      

Corporation tax in Republic of Ireland

  

 

  

Current tax on income for the period

  

79

203

Adjustments in respect of prior periods

  

(40) 

(10)
   

39

193

Double taxation relief

  

(16)

(25)
   

23

168

Foreign tax

      

Current tax on income for the period

  

116

257

Adjustments in respect of prior periods

  

(4)

10
   

112

267
   

135

435

Deferred taxation

      

Origination and reversal of temporary differences

  

9

7

Total income tax expense - continuing operations

  

144

442

Effective income tax rate - continuing operations

  

14.0%

17.6%


Notes to the accounts
 

14 Earnings per share
 

 

2008 

€ m

2007 

€ m 

(a) Basic 

Profit attributable to equity holders of the parent 

Distributions to other equity holders 

767 

(38) 

1,949 

(38) 

Profit attributable to ordinary shareholders 

729 

1,911 


 

Number of shares (millions)

Weighted average number of shares in issue during the period

879.9

876.7

Earnings per share

EUR 82.9c

EUR 218.0c


(b) Diluted 

2008

 € m 

2007 

€ m 

Profit attributable to ordinary shareholders ( note 14(a) ) 

Dilutive impact of potential ordinary shares in subsidiary and associated companies 

729

 -

1,911 

(2) 

Adjusted profit attributable to ordinary shareholders 

729 

1,909 


 

Number of shares (millions)

Weighted average number of shares in issue during the period

879.9

876.7

Dilutive effect of options outstanding

0.2

5.2

Potential weighted average number of shares

880.1

881.9

Earnings per share - diluted 

EUR 82.8c

EUR 216.4c


Notes to the accounts
 

15 Adjusted earnings per share
 

 

Profit attributable

  

Earnings per share
 

2008

2007

  

2008

2007
 

€ m

€ m

  

cent

cent

(a) Basic earnings per share 

          

As reported  (note 14(a)) 

729

1,911

  

82.9

218.0

Adjustments: 

          

Construction contract income 

(11)

(48)    

  

(1.2)

(5.5)

Hedge volatility(1) 

(26)

-     

  

(3.0)

-

Profit on disposal of property(2) 

(1)

(58)   

  

(0.2)

(6.6)

Profit on disposal of businesses 

(106)

-    

  

(12.0)

-
 

585

1,805  

  

66.5

205.9


 

Profit attributable

  

Earnings per share
 

2008

2007

  

2008

2007
 

€ m

€ m

  

cent

cent

Diluted earnings per share 

          

As reported  (note 14(b)) 

729 

1,909 

  

82.8 

216.4 

Adjustments: 

          

   Construction contract income 

(11) 

(48) 

  

(1.2) 

(5.5) 

   Hedge volatility (1) 

(26) 

-

  

(3.0) 

-

   Profit on disposal of property (2) 

(1) 

(58) 

  

(0.2) 

(6.5) 

   Profit on disposal of businesses 

(106) 

-

  

(12.0) 

-
 

585

1,803 

  

66.4 

204.4 


(1)  Hedge volatility (hedging ineffectiveness and derivative volatility) is included in net trading income.

(2)  Profit on disposal of property is related to the sale and leaseback programme  (note 10).
 

Although not required under IFRS, adjusted earnings per share is presented to help understand the underlying performance of the Group. The adjustments in 2008 and 2007 are items that management believe do not reflect the underlying business performance. Only material profits on disposal of businesses are excluded in the calculation of adjusted EPS. The adjustments listed above are shown net of taxation.
 

16 Trading portfolio financial assets
 

 

31 December 

31 December 
 

2008

2007 
 

€ m

€ m 

Loans and receivables to customers 

-

27

Debt securities:

    

   Government securities 

348

144

   Bank eurobonds 

13

4,259

   Collateralised mortgage obligations 

-

3,031

…Other debt securities

7

661
 

368

8,095

Equity shares

33

134
 

401

8,256


Notes to the accounts
 

IAS 39 - Reclassification of financial assets (amendments to IAS 39 Financial Instruments: Recognition and Measurement and IFRS 7 Financial Instruments: Disclosures)

On 13 October 2008, in response to the turmoil on world financial markets, the IASB amended IAS 39 'Financial Instruments: Recognition and Measurement' to allow for the reclassification of non-derivative financial assets out of the 'fair value through profit or loss category' in rare circumstances. The IASB defined rare circumstances as including the current credit crisis and related market dislocation. This amendment allowed the reclassification to be applied retrospectively to 1 July 2008, provided the reclassification had been made before 1 November 2008. Any reclassifications made in periods beginning on or after 1 November 2008 are dealt with prospectively.

The Group adopted this amendment for certain financial assets originally held for trading. These assets were no longer held for the purpose of selling or repurchasing in the near term due to inactive markets and illiquidity, caused by the deterioration of the world's financial markets.

Trading portfolio financial assets reclassified since 1 July 2008 to financial investments available for sale amounted to € 6,104 million. The fair value of reclassified assets at 31 December 2008 was € 5,674 million.

As of the reclassification date, effective 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 2008 would have included unrealised fair value losses on reclassified trading portfolio financial assets of € 236 million.
 

After reclassification, the reclassified assets contributed the following amounts to the income statement:
 

   

2008 
   

€ m 

Interest on financial investments available for sale

  

161

Amounts written off financial investments available for sale

  

(3)


For the reporting period up to date of reclassification, €  55 million of unrealised losses on the reclassified trading portfolio financial assets were recognised in the income statement (year ended December 2007: €  111 million).
 

17 Loans and receivables to banks 

31 December 

31 December 
 

2008 

2007 
 

€ m 

€ m 

Funds placed with central banks 

2,539 

4,957 

Funds placed with other banks 

3,729 

4,510 

Provision for impairment of loans and receivables 

(2) 

(2) 
 

6,266 

9,465 


18 Loans and receivables to customers 

31 December 

31 December 
 

2008 

2007 
 

€ m 

€ m 

Loans and receivables to customers 

126,940 

123,246 

Amounts receivable under finance leases and hire purchase contracts 

3,236 

3,418 

Unquoted securities 

1,605 

1,681 

Provisions for impairment of loans and receivables  (note 19) 

(2,292) 

(742) 
 

129,489

127,603 


Note: Information on the ratings profiles of loans and analysis of criticised loans is set out on pages 11 & 12.
 

Amounts include reverse repurchase agreements of € 106m (2007: € Nil).The unwind of the discount in arriving at the impairment provision amounted to € 45m (2007: € 21m) and is included in the carrying value of loans and receivables to customers. This has been credited to interest income.

Notes to the accounts
 

19 Provisions for impairment of loans and receivables
 

 

2008 

€ m

2007

 € m 

At beginning of period 

Exchange translation adjustments 

Charge against income statement 

Amounts written off 

Recoveries of amounts written off in previous years 

744 

(117) 

1,822 

(166)

 11 

707 

(8) 

106 

(74)

 13 

At end of period 

2,294 

744 

At end of period: 

Specific 

IBNR 

1,148 

1,146 

 

526
 218 
 

2,294 

744 

Amounts include: 

Loans and receivables to banks 

Loans and receivables to customers  (note 18) 

2 

2,292 

2 

742 
 

2,294 

744 


20  Financial investments available for sale

2008 

€ m

2007

 € m 

Debt securities: 

      

   Government securities 

9,001 

7,653 

  

   Collateralised mortgage obligations 

1,541 

1,648 

  

   Other asset backed securities 

4,054 

1,797 

  

   Bank securities 

12,916 

8,659 

  

   Certificates of deposit 

212 

331 

  

   Other investments 

1,013 

570 

  
 

28,737

20658

  

Equity shares 

287

326

  
 

29,024 

20,984 

  


Collateralised mortgage obligations by geography and industry sector of the issuer
 

 

31 December

31 December
 

Governments

Other

Total

Total
   

financial

    
 

€ m

€ m

€ m

€ m

United Kingdom 

-

171

171

59

United States of America 

1,330

32

1,362

1,589

Rest of World 

-

8

8

-
 

1,330

211

1,541

1,648


Notes to the accounts
 

Other asset backed securities by geography and industry sector of the issuer

 

31 December

31 December
         

2008

2007
 

Governments

Banks

Building

Other

Total

Total
     

societies

financial

    
 

€ m 

€ m

€ m

€ m

€ m

€ m

Republic of Ireland 

-

21 

-

341 

362 

77 

United Kingdom 

-

81 

-

631 

712 

136 

United States of America 

314 

-

-

423 

737 

513 

Australia 

-

8 

14 

513 

535 

369 

Italy 

-

-

-

261 

261 

128 

Spain 

-

34 

-

1,242 

1,276 

493 

Rest of World 

-

-

-

171 

171 

81 
 

314

144 

14 

3,582 

4,054 

1,797 


21 External credit ratings

The external ratings profiles of loans and receivables to banks, trading portfolio financial assets (excluding equity shares) financial

investments available for sale (excluding equity shares) and financial investments held to maturity are as follows:
 
 

 

2008
 

Bank

Corporate 

Sovereign 

Other 

Total 
 

€ m

€ m 

€ m 

€ m 

€ m 

AAA/AA 

11,843 

3 

7,227 

5,494 

24,567 

A 

7,256 

63 

3,534 

242 

11,095 

BBB+/BBB/BBB-

281 

214 

85 

128 

708 

Sub investment 

24 

108 

2 

215 

349 

Unrated 

3 

96 

-

52 

151 

Total 

19,407 

484 

10,848 

6,131 

36,870 


 

2007
 

Bank

Corporate 

Sovereign 

Other 

Total 
 

€ m

€ m 

€ m 

€ m 

€ m 

AAA/AA 

16,265 

-

5,026 

6,684 

27,975 

A 

6,191 

60 

2,690 

29 

8,970 

BBB+/BBB/BBB-

160 

209 

81 

185 

635 

Sub investment 

92 

134 

-

291 

517 

Unrated 

6 

37 

-

105 

148 

Total 

22,714 

440 

7,797 

7,294 

38,245 


 

31 December 

31 December 
 

2008 

2007 

22 Customer accounts 

€ m 

€ m 

Current accounts 

21,528 

25,136 

Demand deposits 

8,370 

9,101 

Time deposits 

62,705 

47,070 

Securities sold under agreements to repurchase 

1 

1 
 

92,604 

81,308 


Notes to the accounts
 

 

2008

2007

23 Debt securities in issue

€ m 

€ m 

Bonds and medium term notes: 

  

European medium term note programme 

9,641 

    

12,553 

Bonds and other medium term notes 

7,211 

    

7,259 
 

16,852

19,812 

Other debt securities in issue: 

  

Commercial paper 

5,912 

    

2,987 

Commercial certificates of deposit 

15,050 

    

19,067 
 

20,962 

22,054 
 

37,814

41,866 


 

Contract amount
 

31 December

31 December
 

2008

2007

24 Memorandum items: contingent liabilities and commitments

€ m 

€ m 

Contingent liabilities:

Guarantees and assets pledged as collateral security: 

   Guarantees and irrevocable letters of credit 

7,146

  

5,628

   Other contingent liabilities 

1,044

  

1,393
 

8,190

  

7,021

Commitments: 

   Other commitments 

20,249

  

   23,715
 

28,439

  

  30,736


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.
 

25 Subordinated liabilities and other capital instruments

Dated loan capital issued under the European Medium Term Note Programme is subordinated in right of payment to the ordinary creditors, including depositors, of the Group.

On 12 June 2008, the €  200 million Floating Rate Notes, due 2013, were redeemed. The 250,000 Non-Cumulative preference shares issued in 1998 in the amount of US$ 25 each, with a liquidation preference of US$ 250 million, were redeemed on 15 July 2008 at a price equal to US $1,000 per share (consisting of a redemption price of US$ 995.16 plus a special dividend of US$ 4.84 per share), plus accrued dividends.

In June 2008, Stg £700 million Callable Dated Subordinated Fixed/Floating rate notes due July 2023 were issued under the €30 billion European Medium Term Note Programme. Interest is payable semi-annually at a rate of 7.875% per annum, up to 5 June 2018 and thereafter at a rate of 3.5% above 3 month sterling Libor, payable quarterly.
   Notes to the accounts
 

26 Derivative financial instruments

The following table presents the notional principal amount and net fair value of interest rate, exchange rate, equity and credit derivatives contracts for 2008 and 2007.

 

2008

  

2007
 

Notional

Net 

  

Notional 

Net 
 

principal

fair 

  

principal 

fair 
 

amount

value 

  

amount 

value 
 

€ m

€ m

  

€ m

€ m

Interest rate contracts (1) 

220,446 

1,288 

  

233,463 

499 

Exchange rate contracts (1) 

34,297 

(349) 

  

28,977 

(45) 

Equity contracts (1) 

4,254 

4 

  

6,955 

-

Credit derivatives (1) 

937 

(83) 

  

1,117 

(39) 

Total 

259,934 

860 

  

270,512 

415 


(1)  Interest rate contracts and exchange rate contracts are entered into for both hedging and trading purposes. Equity and credit derivative contracts are entered into for trading purposes only.
 

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 including counterparty credit approval, limit setting and monitoring procedures. In addition, derivative instruments are subject to the market risk policy and control framework.
 

27 Average balance sheets and interest rates

The following tables show the average balances and interest rates of interest earning assets and interest bearing liabilities for the years ended 31 December 2008 and 2007. 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
 

 

Year ended 31 December 2008

  

Year ended 31 December 2007
 

Average 

Interest 

Average 

  

Average 

Interest 

Average 
 

balance 

  

rate 

  

balance 

  

rate 

Assets 

€ m 

€ m 

% 

  

€ m 

€ m 

% 

Loans and receivables to banks 

              

Domestic offices 

8,357

316

3.8

  

9,276 

422 

4.5 

Foreign offices 

1,821

104

5.7

  

1,712 

96 

5.6 

Loans and receivables to customers 

              

Domestic offices 

89,641

5,362

6.0

  

78,806 

4,671 

5.9 

Foreign offices 

43,449

3,012

6.9

  

39,840 

2,860 

7.2 

Trading portfolio financial assets 

              

Domestic offices 

3,390

184

5.4

  

7,848 

372 

4.7 

Foreign offices 

508

16

3.0

  

1,005 

21 

2.1 

Financial investments 

              

Domestic offices 

22,081

999

4.5

  

16,302 

774 

4.7 

Foreign offices 

5,165

273

5.3

  

4,781 

247 

5.2 

Average interest earning assets 

              

Domestic offices 

123,469

6,861

5.5

  

112,232 

6,239 

5.6 

Foreign offices 

50,943

3,405

6.7

  

47,338 

3,224 

6.8 

Net interest on swaps 

  

(46)

      

(106) 

  

Total average interest earning assets 

174,412

10,220

5.8

  

159,570 

9,357 

5.9 

Non-interest earning assets 

13,183

      

10,531 

    

Total average assets 

187,595

10,220

5.4

  

170,101 

9,357 

5.5 

Percentage of assets applicable to 

Foreign activities

    

30.5

      

30.4


Notes to the accounts
 

27 Average balance sheets and interest rates  (continued)
 

 

Year ended 31 December 2008

 

Year ended 31 December 2007

 

Average 

Interest 

Average 

 

Average 

Interest 

Average 

 

balance 

 

rate 

 

balance 

 

rate 

Liabilities and shareholders' equity 

€ m 

€ m 

% 

 

€ m 

€ m 

% 

Due to banks 

 

 

 

 

 

 

 

Domestic offices 

27,592

1,234

4.5

 

31,080 

1,448 

4.7 

Foreign offices 

3,576

146

4.1

 

2,682 

137 

5.1 

Due to customers 

 

 

 

 

 

 

 

Domestic offices 

46,015

1,527

3.3

 

38,401 

1,167 

3.0 

Foreign offices 

30,569

1,332

4.3

 

27,060 

1,199 

4.4 

Other debt issued 

 

 

 

 

 

 

 

Domestic offices 

25,578

1,092

4.3

 

24,161 

1,069 

4.4 

Foreign offices 

19,384

773

4.0

 

12,063 

667 

5.5 

Subordinated liabilities 

 

 

 

 

 

 

 

Domestic offices 

4,206

197

4.7

 

3,772 

195 

5.2 

Foreign offices 

864

52

6.0

 

1,009 

57 

5.6 

Total interest earning liabilities 

 

 

 

 

 

 

 

Domestic offices 

103,391

4,050

3.9

 

97,414 

3,879 

4.0 

Foreign offices 

54,393

2,303

4.2

 

42,814 

2,060 

4.8 

Total average interest earning liabilities

157,784

6,353

4.0

 

140,228

5,939

4.2

Non interest earning liabilities

20,871

 

 

 

21,117 

 

 

Total average liabilities 

178,655

6,353

3.5

 

161,345

5,939

3.7

Stockholders' equity

8,940

 

 

 

8,756

 

 

Total average liabilities and 

stockholders' equity

 

187,595

 

6,353

3.4

 

 

170,101

5,939

3.5

Percentage of liabilities applicable to foreign operations

 

 

33.9

 

 

 

31.5


28 Post-balance sheet events

On 11 February 2009, the Minister for Finance of the Government of Ireland announced a recapitalisation package under which the Irish Government will provide € 3.5 billion core tier 1 capital to AIB and receive preference shares with warrants to purchase up to 25% of the ordinary share capital. Except for this recapitalisation package, there have been no material post balance sheet events which would require disclosure or adjustment to the 31 December 2008 financial statements. On 27 February 2009, the Board of Directors reviewed the financial statements and authorised them for issue. The financial statements will be submitted to the Annual General Meeting of Shareholders to be held on 29 April 2009.
 

29 Dividends

No final dividend will be paid in respect of the year ended 31 December 2008.
 

30 Approval of accounts

The accounts were approved by the Board of Directors on 27 February 2009. The Annual Financial Report for the year ended 31 December 2008 will be available on the Internet website  http://www.aibgroup.com/investorrelations on 30 March 2009. The Annual Financial Report for the year ended 31 December 2008 will be filed in the Companies Registration Office with the annual return. The Auditors have reported on the audited financial statements; their report was unqualified and did not contain a statement under section 193 of the Companies Act 1990.
 
Financial and other information
 
 

 

2008

2007 

Operating ratios 

    

Operating expenses/operating income 

46.5% 

51.8% 

Other income/operating income 

23.7% 

29.8% 

Net interest margin: 

    

   Group 

2.21% 

2.14% 

   Domestic 

2.23% 

2.10% 

   Foreign 

2.16% 

2.46% 

Rates of exchange 

    

€ /US $ 

    

   Closing 

1.3917 

1.4721 

   Average 

1.4707 

1.3749 

€ /Stg £ 

    

   Closing 

0.9525 

0.7334 

   Average 

0.7964 

0.6861 

€ /PLN 

    

   Closing 

4.1535 

3.5935 

   Average 

3.5114 

3.7792 


Financial and other information  (continued)
 

 

Capital Requirement Directive

CAD

Capital adequacy information 

31 December 

2008 

€ m 

31 December 2007 

€ m 

31 December 2007 

€ m 

Tier 1 

Paid up ordinary share capital 

Eligible reserves 

Equity minority interests in subsidiaries 

Supervisory deductions from core tier 1 capital

294 

8,569 

354 

(1,490) 

294 

8,566 

361 

(1,176)

294 

8,566 

361 

(1,176)

Core tier 1 capital 

Non-equity minority interests in subsidiaries 

Non-cumulative preference shares 

Non-cumulative perpetual preferred securities Reserve capital instruments 

Supervisory deductions from tier 1 capital 

7,727 

990 

-

864 

497 

(172) 

8,045 

990 

169 

972 

497 

(286) 

8,045 

990 

169 

972 

497 

(182) 

Total tier 1 capital 

9,906 

10,387 

10,491 

Tier 2 

Eligible reserves 

Credit provisions 

Subordinated perpetual loan capital 

Subordinated term loan capital 

Supervisory deductions from tier 2 capital 

232 

536 

692 

2,970 

(172) 

212 

101 

813 

2,651 

(286) 

107 

218 

813 

2,651 

-

Total tier 2 capital 

4,258 

3,491 

3,789 

Gross capital 

Supervisory deductions 

14,164 

(114) 

13,878 

(143) 

14,280 

(182) 

Total capital 

14,050 

13,735 

14,098 

Risk weighted assets

      

Banking book:

      

   On balance sheet

    

120,033

   Off balance sheet

    

12,408
     

132,441

Trading book:

      

  Market risks

    

6,193

  Counterparty and settlement risks

    

752
     

6,945

Credit risk 

Market risk 

Operational risk 

124,602 

2,043 

7,250 

121,785 

5,796 

6,510 

  

Total risk weighted assets 

133,895 

134,091 

139,386 

Capital ratios

      

Core Tier 1 

Tier 1 

Total

5.8% 

7.4% 

10.5%

6.0% 

7.7% 

10.2%

5.8% 

7.5% 

10.1%


The Group's Basel II capital ratios are based on Pillar 1 ('Minimum Capital Requirements') under the Capital Requirements Directive. Under Pillar 2 ('Supervisory Review') banks may estimate their own capital requirements through an Internal Capital Adequacy Assessment Process ("ICAAP") which is subject to supervisory review and evaluation. The ICAAP evaluation is currently in progress.


Five year financial summary
 
 

 

Year ended 31 December

Summary of consolidated income statement 

2008 

€ m 

2007 

€ m

2006

€ m

2005 

€ m

2004 

€ m

Net interest income 

Other income 

3,867 

1,201 

3,418 1,450 

2,999 1,327 

2,530 1,117 

2,072 1,144 

Total operating income 

Total operating expenses 

5,068 

2,357 

4,868 2,521 

4,326 2,314 

3,647 2,011 

3,216 1,869 

Operating profit before provisions 

Provisions 

2,711 

1,849 

2,347 

99 

2,012 

104 

1,636 

143 

1,347 133 

Operating profit 

Associated undertakings 

Profit on disposal of property 

Construction contract income 

Profit on disposal of businesses 

862 

37 

12 

12 

106 

2,248 

128 

76 

55 

1 

1,908 

167 

365 

96 

79 

1,493 

149 

14 

45 

5 

1,214 132 

9 

-

17 

Profit before taxation - continuing operations 

Income tax expense - continuing operations 

1,029 

144 

2,508 

442 

2,615 

433 

1,706 

319 

1,372 267 

Profit after taxation - continuing operations 

Discontinued operation, net of taxation 

885 

-

2,066 

-

2,182 

116 

1,387 

46 

1,105 53 

Profit for the period 

885 

2,066 

2,298 

1,433 

1,158 

Basic earnings per share 

Diluted earnings per share 

82.9c 

82.8c 

218.0c 216.4c 

246.8c 244.6c 

151.0c 149.8c 

132.0c 131.5c 


 

As at 31 December
 

2008 

2007 

2006 

2005 

2004 
 

IFRS 

IFRS 

IFRS 

IFRS 

IFRS 

Summary of consolidated balance sheet 

€ m 

€  m 

€  m 

€  m 

€ m 

Total assets 

182,143 

177,862 

158,526 

133,214 

101,109 

Total loans 

135,755 

137,068 

120,015 

92,361 

67,278 

Total deposits 

155,996 

153,563 

136,839 

109,520 

82,384 

Dated capital notes 

2,970 

2,651 

2,668 

2,678 

1,923 

Undated loan capital 

692 

813 

871 

868 

346 

Other capital instruments 

864 

1,141 

1,205 

210 

497 

Minority interests in subsidiaries 

1,344 

1,351 

1,307 

1,248 

1,211 

Shareholders' funds: other equity interests 

497 

497 

497 

497 

182 

Ordinary shareholders' equity 

8,441 

9,330 

8,108 

6,672 

5,745 

Total capital resources 

14,808 

15,783 

14,656 

12,173 

9,904 


Five year financial summary
 
 

 

Year ended 31 December
 

2008 

2007 

2006 

2005 

2004 

Other financial data 

% 

% 

% 

% 

% 

Return on average total assets 

0.47 

1.21 

1.63 

1.20 

1.22 

Return on average ordinary shareholders' equity 

8.2 

21.8 

29.0 

20.6 

20.7 

Dividend payout ratio 

37.0 

36.4 

29.3 

43.5 

45.5 

Average ordinary shareholders' equity 

          

   as a percentage of average total assets 

4.8 

5.1 

5.2 

5.3 

5.7 

Allowance for loan losses as a percentage 

          

   of total loans to customers at year end 

1.4 

0.6 

0.7 

0.8 

1.2 

Net interest margin 

2.21 

2.14 

2.26 

2.38 

2.45 

Tier 1 capital ratio 

7.4 

7.5 

8.2 

7.2 

8.2 

Total capital ratio 

10.5 

10.1 

11.1 

10.7 

10.9 


 

 

 

                               Signatures

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorised.


                                               ALLIED IRISH BANKS, p.l.c.
                                               (Registrant)

 

 

Date  2 March, 2009 

                                                        By: ___________________
                                     John O'Donnell
                                                   Group Director, Finance,
                                                              Risk and Enterprise Technology
                                                   Allied Irish Banks, p.l.c.