1 AIB Mortgage Bank – Asset Covered Securities June 2007 A number of statements we will be making in our presentation and in the accompanying slides will not be based on historical fact,but will be forward-looking statements within the meaning of the United States Private Securities Litigation Reform Act of Actual results may differ materially from those projected in the forward looking statements. Factors that could cause actual results to differ materially from those in the forward looking statements include, but are not limited to, global, national and regional economic conditions, levels of market interest rates, credit or other risks of lending and investment activities, competitive and regulatory factors and technology change. Any forward-looking statements made by or on behalf of the Group speak only as of the date they are made.

2 Contents Sections 1. AIB Mortgage Bank, Collateral Pool & Legislative Changes 2. Irish Housing Market 3. Performance of Irish Covered Bonds 4. AIB Group Funding Profile Appendices Irish Asset Covered Bond Legislation AIB Group Overview Republic of Ireland Economy

3 Section 1: AIB Mortgage Bank, Collateral Pool & Legislative Changes

4 Overview of AIB Mortgage Bank Registered as a Designated Mortgage Credit Institution (DCI) License granted by Regulator – Feb 2006 Non-guaranteed, Public Unlimited Company wholly owned by AIB plc 9 Directors, including 3 non-executive directors Major activities outsourced to AIB (ROI) Division subject to terms of the Service Level Agreement Mortgage Assets Total 16bn+ Capital Exceeds 8.5%+ of RWA at 766m 15bn EMTN programme launched in ACS Bond issues completed, total 5.5bn

5 AIB Groups position in the Irish Mortgage Market Total Irish mortgage market drawn balances are estimated at 100bn+ AIB Bank market share 16%+ AIB Bank presence in all major towns and cities via a network of 275 offices 35%+ of the banked public have a primary account relationship with AIB Bank 80%+ of branch sourced mortgages come from existing AIB Bank account holders Mortgages are originated by AIB Bank and sold by AIB Mortgage Bank AIB MB does not book mortgages introduced through intermediaries and only holds assets comprising residential mortgages

6 Credit Policy AIB Banks marketing is focused on customer relationships – we sell mortgages to customers we know Priority measure is ability to repay and then asset quality For owner occupied residential mortgages the Max Loan amount determined by Debt Service Ratio (DSR) = the Proportion of Net Income that is prudent to allow for purposes of Mortgage Repayments Buy to Let mortgages utilise cashflow assessment DSR is stress tested to allow for increases in interest rates of 2% Max LTV = 92% Lenders have no sanctioning Targets/Quotas Exceptions are approved by Senior Mortgage Lenders Regular reporting to Regulator

7 Residential Mortgage Historic Data Loan to Value Ratio* Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 < 75% > 75% < 90% > 90% 88913**13 Total 100% * % of drawdowns ** Policy raised to 92% 2005 Arrears Profile Dec 2002 Dec 2003 Dec 2004 Dec 2005 Dec 2006 % of Total Mortgage Advances 0.8%0.5% 0.4% New Business LTV Percentages

8 Residential Mortgage Portfolio Data Indexed LTV Ranges of Collateral Pool Indexed LTV RangeOutstanding Balance < 25%12% 25% - 50%28% 50% - 75% 41% 75% - 100% 19% Weighted average Indexed collateral LTV 54.4%

9 Residential Mortgage Portfolio Data Origination by year Weighted Averaging seasoning of pool = 28.6months Average legal maturity is 20 years Expected average life estimated between 5 to 7 years Total aggregate indexed LTV = 38% YearOutstanding Balance Aggregate Indexed LTV of Year < % %36% %42% %46% %49% %51%

10 Residential Mortgage Portfolio Data Geographic breakdown of Collateral Pool RegionOutstanding Balance Dublin area31% Non-Dublin69% Occupancy Breakdown of Collateral Pool TypeOutstanding Balance Own Residence75% Buy to Let (residential investment)23% Other (holiday home)2% Total100%

11 ACS: AIBMB Collateral Pool No commercial mortgages, no arrears > 3 months included in pool, minimal interest rate risk Collateral Pool Criterion Minimum contractual over-collateralisation5% Actual over-collateralisation (excluding cash)64% Pool size by PMV9.029bn Aggregate Prudent LTV38% WA Indexed LTV54% Dublin / non-Dublin31/69 No. of properties55,756 BTL / Owner Occupier23/77 Fixed rate13% Interest only24%* Prudent Market Discount15% WA Seasoningc.28 months * Interest Only loans are primarily < 5 years then revert to annuity

12 AIB Mortgage Bank Summary AIB Mortgage Bank launched three bond issues in 2006 totalling 5.5bn Mortgages are originated from the AIB Bank branch network in Ireland Tight credit policies ensure credit quality Portfolio data illustrates granularity, low LTVs, geographic diversity Interest only loans are primarily granted for periods of less than 5 years Annuity effect on the portfolio contributes to reducing the LTV Expected average life is between 5 & 7 years

13 Asset Covered Securities (Amendment) Act 2007 The rationale for the amendments includes Introduction of Capital Requirements Directive in 2007 Ensuring Irish ACS legislation remains fully CRD compliant ACS legislation requires Irish ACS issuers to be compliant with the CRD at all times resulting in transparency for investors and a 10% Basel II Risk Weighting Enhancing investor protection Completing legislative framework for a 3rd asset type - commercial mortgages Changes ensure that Irish ACS are CRD compliant in terms of the definition of a Covered Bond, but the changes do not go as far as the CRD in terms of eligible assets ensuring that credit quality within the pools is maintained The three key changes are Quality of Eligible Assets Risk Control Monitoring & Compliance

14 Asset Covered Securities Legislation The Irish Government has clearly demonstrated commitment to the growth of covered bond issuance in Ireland by updating the ACS legislation The amended legislation has ensured ACS bonds are CRD compliant Every effort has been made to provide transparency to investors The result allows investors to compare the Irish ACS framework with leading covered bond competitors from Germany and France

15 Section 2: Irish Housing Market

16 Period of Adjustment for Housing Market Adjustment in the housing market underway Rate of price inflation falling Forward looking indicators point to lower supply Market had been in danger of overheating Level of price rises was becoming unsustainable Output at very high levels Factors driving adjustment High level of prices Rising interest rates - leading to deteriorating affordability

17 Many Factors Underpinning Strong Housing Demand Continued strong inward migration Favourable demographic trends Untapped demand: low headship rates in Ireland Continuing demand for second homes Strong growth of economy and employment Easier financing: longer term mortgages, interest rates still low in historical context Fiscal policy: mortgage interest relief for FTB, tax relief on rental income for investors, easing in stamp duty for FTB

18 House Price Inflation is Falling Sharply

19 But This Should Help Stabilise Deterioration in Housing Affordability

20 House Completions Topping Out at High Level

21 Functional Demand for Additional Housing (Year to April) 17,40017,300 12,550 Indigenous Population Growth 24,00027,50018,700 13,650Migration Flows 20,000 9,700 1,250Headship 10,00016,00019,600 10,800Second / Vacant Homes 9,600 9,2008,300 6,500 Replacement of Obsolete Units 81,00090,00073,600 44,750Completions 2008 (f) 2007 (e) Avg Avg 1996 – 2002

22 Migration Now a Significant Component of Housing Demand

23 Robust Employment Growth and Low Unemployment Support Housing Demand

24 Risk Factors For Housing Interest rates still have a bit to go Deterioration in economic environment and labour market situation Market falls further as urgency to purchase recedes with decline in house price inflation Risk of undue pessimism … negative media reporting etc

25 Summary On Housing Market Period of Adjustment Underway Both prices and output adjusting downward Market remains well underpinned Good economic climate Rapid employment growth Untapped demand Large influx of migrants Market still heading for soft landing

26 Section 3: Performance of Irish Covered Bonds

27 Covered Bond Trading Irish ACS account for 13.3% of total MTS traded volume – reflecting demand for the ACS product Irish ACS account for 11.6% of all outstanding covered bonds Eligibility for EuroMTS - - issuer must be Dutch, French, German, Irish, Italian, Spanish or UK - Collateral pool must be mortgage backed or public sector - Issue size 2bn or greater Euro Credit MTS / EUROMTS Q % Traded Volume Listed Covered Bonds Q % Outstanding by Region

28 Performance of AIB MB Issues Issue DateMar 2006Dec 2006 MaturityApr 2009Apr 2013Jan 2010 Tenor3 Years7 Years3 Years Amount 2.5 bn1 bn2 bn Coupon 3.5%3.75% Launch spread m/s Current spread m/s Market makers Barc/DB/MS/CBarc/BNP/MS/UBS DZ/HVB/LBBW/UBSCMZ/HSBC/HVB/WestLB

29 Performance of AIB MB Issues Source: UBS AIB spread at launch MS-3 HYPINT spread at launch MS-4 AIB current spread MS-9.7 HYPINT current spread MS-11.8

30 Source: UBS Performance of AIB MB Issues AIB spread at launch MS+1 LBBW spread at launch MS-1 AIB current spread MS-2.9 CIFEUR current spread MS-3.9 LBBW current spread MS-6.8 CIFEUR spread at launch MS-1

31 Performance of AIB MB Issues Source: UBS AIB spread at launch MS-4 CFF spread at launch MS-6.5 CFF current spread MS-9.2 AIB current spread MS-10.0

32 Performance of Irish Covered Bonds Summary All benchmark issues from AIB MB are supported by active market makers EuroMTS records substantial volumes of Irish ACS trading Investment bank research suggests spreads should tighten Amended Irish ACS legislation will assist in Irish ACS spreads tightening against German Pfandbrief and French mortgage bank issues

33 Section 4: AIB Group Funding Profile

34 AIBs Funding Programmes Short Term Instruments OTC Certificates of Deposit,, STG, US$, Can$, A$ US $10bn Commercial Paper Programme US $10bn Yankee CD Programme 5bn French Certificate of Deposit Programme Can $3bn Maple Commercial Paper Programme* Long Term Instruments AIB plc ( Aa2 / A+(p) / AA-) 30bn EMTN programme $ 10bn US$ Extendible Note Programme AIB Mortgage Bank (Aaa / AAA / AAA) 15bn covered bond EMTN programme

35 AIB Debt Distribution: 31 March 2007 Note: Step-up issues – adjusted to earliest step-up date AIB Debt DistributionAIB Debt Currency Mix

36 Funding Composition

37 Funding Profile Summary The Dublin based Global Treasury has suitable debt programmes available to support the AIB Groups funding strategy AIB Groups issuance of AAA/Aaa/AAA bonds is limited to issuance from AIB MB AIB MB represents c. 11% of AIB Groups total Balance Sheet 2007 forecast issuance includes c.3b of ACS AIB will continue to grow institutional investor base by focusing the majority of new transactions on benchmark issues AIB is committed to ensuring AIBs securities trade at a realistic market level, by having a commercial approach to pricing, and by appointing experienced intermediaries with proven market making skills Commited to Debt Investor Relations

38 Contacts AIB Web Sitewww.aib.ie/investor relations Contains AIB & AIB Mortgage Bank programmes, listing particulars and presentations AIB Group Investor Relations GM Group Finance Alan Kelly T: ManagerRose ODonovanT: AIB Global Treasury Treasurer Funding and LiquidityGerry OConnor T: Chief Dealer, Capital and Debt IR Duncan Farquhar T : Chief Dealer, Senior Debt & ACS Sean Cremen T:

39 Appendix: Irish Covered Bond Legislation

40 Asset Covered Securities Act 2001 In Ireland the activity relating to asset covered securities is primarily governed by the legislation which delegates the operational regulation to the Irish Financial Services Regulatory Authority (IFSRA) Specialist bank principle - ACS can only be issued by a Designated Credit Institution (DCI) A DCI must be approved by IFSRA be owned by an IFSRA regulated bank be separately capitalised have non-executive Board membership agree to be restricted to activities defined within the ACS legislation Eligibility for asset classes to be held by a DCI The Act restricts the asset classes, and requires IFSRA to issue a Regulatory Notice (RN) for each asset class RNs have been issued for 2 asset classes - Public Sector and Residential Mortgages RNs describe the procedures for valuing the collateral

41 Asset Covered Securities Act 2001 Covered Asset Monitor (CAM) is an independent appointment, subject to approval by IFSRA. The CAM is responsible for monitoring the collateral pool The DCIs assets are divided between the pledged collateral pool and unpledged assets The RN valuation methodology governs both pledged and unpledged assets, and requires all mortgages to be indexed by reference to an IFSRA approved index, IL&P/ESRI Property Index a Prudent Discount Factor (PDF) is used to discount upward movements of the index whilst all negative movements are taken in full, the result is the Prudent Market Value (PMV) In the pledged collateral pool any one mortgage loans contribution to the collateral pool is limited to 75% of the PMV of the secured property Loans may have high LTVs but the aggregate LTV of the entire mortgage loan portfolio of the DCI must not exceed 80% of the PMV of the properties

42 Asset Covered Securities Act 2001 The combined effect of The Act and the RN ensures the quality of the residential mortgage collateral cannot be compromised by changes in property market prices; the restrictions extend to controlling both the aggregate collateral holding in the DCI and the actual collateral Pool The ACS Bondholders are protected at all times, since The Prudent Market Value of the Pool must be > the ACS principal outstanding The interest receivable from the Pool must be > the interest payable on the ACS for any 12 month period The weighted average maturity of the pool must be > the ACS maturity

43 Asset Covered Securities Act 2001 Balance Sheet Interest rate sensitivity is subject to limits Publication of statutory accounts, including report on collateral performance In the Event of Default National Treasury Management Agency (Govt. Agency) appointed Pool exempt from bankruptcy proceedings Bond holders prioritised

44 Asset Covered Securities (Amendment) Act 2007 The rationale for the amendments includes Introduction of Capital Requirements Directive in 2007 Ensuring Irish ACS legislation remains fully CRD compliant ACS legislation requires Irish ACS issuers to be compliant with the CRD at all times resulting in transparency for investors and a 10% Basel II Risk Weighting Enhancing investor protection Completing legislative framework for a 3rd asset type - commercial mortgages Changes ensure that Irish ACS are CRD compliant in terms of the definition of a Covered Bond, but the changes do not go as far as the CRD in terms of eligible assets ensuring that credit quality within the pools is maintained The three key changes are Quality of Eligible Assets Risk Control Monitoring & Compliance

45 Asset Covered Securities (Amendment) Act 2007 Quality of Eligible Assets Responds to investors and rating agencies desire to maintain high quality and well diversified Cover Pools. The changes have taken some of the CRD opportunities to enhance diversification but have maintained a focus on the eligibility of the highest quality credits Residential Mortgages Securitised mortgage collateral becomes eligible for the pool, enhancing the credit quality and most importantly the liquidity of the mortgage assets in the pool To facilitate diversification, mortgages from highly rated countries outside the EU are now eligible (USA, Canada, Switzerland, Japan, New Zealand, Australia) Commercial Mortgages Are now eligible provided a separate covered pool is established Public Sector The 15% restriction on assets from the United States, Canada, Switzerland and Japan has been removed In addition, New Zealand and Australia have become eligible countries (both AAA at S&P). Other non-Aaa non-EU countries are not eligible Development Banks have now become eligible (only the EIB was eligible before)

46 Asset Covered Securities (Amendment) Act 2007 Risk Control Legislative Over-collateralisation Currently, all Irish ACS issuers are contracted with the rating agencies to 5% over- collateralisation Now obligation to maintain 3% over-collateralisation by law for mortgage and public sector pools New mandatory 10% over-collateralisation for commercial mortgage ACS required by law The Regulator will continue to issue Regulatory Notices which govern the collateral pool valuation procedures Collateral pools will continue to be valued by reporting to CAMs on a weekly or monthly basis

47 Asset Covered Securities (Amendment) Act 2007 Risk Control Pool Hedge Collateral The amendment introduces a separate register of pool hedge collateral which will clarify the rights of hedge counterparties making it easier for issuers to enter into ISDA and CSA agreements for the direct benefit of the cover pool and bond holders The amendments will ensure the transparent management of pool hedge collateral Facilitates effective use of derivatives to manage interest rate and currency exposures allowing issuers to improve the matching in the pool for the benefit of bondholders Changes in the duration gap calculation Test has now been simplified to ensure transparency Will assess the weighted average time to maturity of the assets and liabilities in the pool Reduction in the volume of substitute assets Compliant with the CRD, the volume of substitute assets under these amendments will go from 20% of pool assets to 15% of ACS issued

48 Asset Covered Securities (Amendment) Act 2007 Monitoring & Compliance The ACS legislation is at the forefront of the market with regard to its monitoring and compliance The weekly or monthly reporting (depending on the issuer) of the Cover Pools and DCI information and the real-time monitoring of that data by the Covered Asset Monitor mean that the ACS market retains the strongest oversight – hence very few amendments have been made here The adjustments are limited to: Ensuring the CAM has responsibility for monitoring the legislative over- collateralisation requirement as well as the existing contractual over-collateralisation requirements Ensuring the CAMs obligations to monitor ACS issuers now captures any Commercial Mortgage issuers that enter the market The role of the NTMA as the servicer of last resort has not been amended in the legislation remaining a cornerstone of the ACS framework

49 Asset Covered Securities Legislation Summary The Irish Government has clearly demonstrated commitment to the growth of covered bond issuance in Ireland by updating the ACS legislation The amended legislation has ensured ACS bonds are CRD compliant Every effort has been made to provide transparency to investors The result allows investors to compare the Irish ACS framework with leading covered bond competitors from Germany and France

50 Appendix: AIB Group Overview

51 Allied Irish Banks p.l.c. Irelands largest quoted company & financial institution by capitalisation 19.5 billion (Apr 07) 15.2 % of Irish Stock Market Index 12 th /43 DJ Stoxx Bank Index 25 rd /52 FTSE Eurotop Bank Index

52 Clear no. 1 Irish banking franchise operating in a high growth economy Providing the full range of retail and commercial banking services Significant market shares in key segments - clearing accounts, corporate lending, etc Insurance joint venture with Aviva 17% Share of residential mortgage market Mainland GB – AIB has a clearly defined marketing agenda Focused on relationship banking with the mid-corporate business sector, professionals, and High Net Worth individuals Significant corporate banking relationships Northern Ireland - operation of full service clearing bank Centralised business model in Dublin Offices in London, Frankfurt, Paris, NY, Toronto & Sydney Dominant business is corporate banking Other units include treasury, stockbroker, corporate finance, asset management In 2003, AIB acquired a holding in M&T Bank, which now totals 24.2% AIB is represented on both the Board and Executive Committee AIB Bank RoIAIB (GB & NI)Capital MarketsM&T Bank Allied Irish Banks plc Represented by 70.5% holding of Bank Zachodni WBK Polands 5 th largest bank, provides a full range of retail and commercial banking services 400+ branch network, mainly focused on Western Poland Poland Op Profit - 43% 18%9%23%7% AIB Group Structure

53 AIB Bank RoI942m 23% Capital Markets508m 29% AIB Bank UK378m 18% Poland201m 52% M&T*141m 4% 2006 operating profit by division 43% 23% 18% 9% 7% * after tax contribution AIB: Well Spread Growth

54 % Deposit GrowthLoan and RWA Growth 33% % of Group Loan Portfolio Group Growth & Overview of Loan Portfolio

55 % Declining Cost: Income ratio across all divisions

56 Strong Asset Quality & Robust Capital

57 Appendix: Republic of Ireland Economy

58 Irish Economy Overview Broad based economic growth: 6% in 2006, 5.5% in 2007 Relatively low inflation trend Labour market strong across the board Economy close to full employment Housing demand underpinned by employment and demographic trends House prices moderating as supply and demand converge Slowdown in housing will be offset by private non-residential construction and new national development plan Public finances in very good shape. Large current surpluses financing capital programme Total Employment 00S (LHS) Unemployment Rate % (RHS) Transformation of the Labour Market Low Inflation Coupled with Strong Growth

59 Republic of Ireland Economic Trends (e) 2007 (f) Population (000)3,6013,7894,131 4,2354,340 Employment (000)1,2821,6711,929 2,0172,090 Unemployment (000) Unemployment (%) Inflation (%) Exchequer + / (-) as (% GNP) (1.7)3.6(0.4)1.50 GNP per capita () 12,93623,46032,94635,30037,550 GNP growth rate 8.9%9.2%5.4%7.0%6.0%

60 Source: DOE and ESRI Republic of Ireland Population Growth Ireland Population Age Estimates