Bank of Ireland holds to dividend plans as tracker crisis costs ‘manageable’

Level of impaired loans fell by €400 million to €5 billion in third quarter

The Bank of Ireland headquarters in Dublin.

The Bank of Ireland headquarters in Dublin.

 

Bank of Ireland has said it set aside more money in the three months to September for a possible return to paying dividends early next year, even as it signalled it may have to take an additional charge for costs relating to an industry-wide tracker mortgage controversy.

The bank, which has previously ringfenced €25 million to cover costs in relation to customer redress and compensation for mortgage overcharging, said that any additional provision required, as it continues to search for impacted customers, should be “manageable”.

The comments, contained in a trading statement that was issued a day ahead of schedule on Thursday, come after Bank of Ireland and the country’s four other main mortgage lenders issued statements on how they plan to draw a line under a tracker-mortgage scandal going back almost a decade.

The bank has identified about 600 customers who were wrongly denied a tracker mortgage and a further 3,700 who were overcharged by an average of 0.15 on a tracker rate of interest. Its new chief executive of less than a month, Francesca McDonagh, committed this week to paying redress and compensation to the impacted borrowers, “subject to their agreement, by the end of the year.”

Bank of Ireland also disclosed on Wednesday that it is carrying out a review to see if “other customers should be included in the compensation process” and that it will issue a further update in the middle of November.

Meanwhile, the trading update said that the group’s level of impaired loans fell by €400 million during the third quarter of the year to €5 billion, while new lending for the first nine months of the year rose by 3 per cent on the comparable period in 2016 to €10 billion.

The group’s capital reserves position, measured as a common equity Tier 1 ratio rose by 0.3 percentage points to 12.8 per cent in the three months to the end of September.

The pace of increase in this keenly-followed gauge of a bank’s financial strength was slowed as bank continued to invest in an overhaul of its technology systems, a “modest increase” in its pension deficit and an unspecified reduction for a potential dividend payment to shareholders early in 2018.

The bank had previously set aside a €70 million provision for dividends in the first half of the year.

The bank’s net interest margin – the difference between the average rate at which it funds itself and lends on to customers – for the first nine months of the year was 2.34 per cent, marginally higher than the 2.32 per cent rate reported for the first half.

However, the bank said that its recent sale of €750 million of subordinated debt will shave 0.03 percentage points off the margin in the first quarter.

“The group continues to trade in line with expectations,” Bank of Ireland said in the statement. “Economic growth in our core markets of Ireland and the UK remained positive, notwithstanding ongoing uncertainties relating to the UK’s decision to leave the European Union. ”

“The group has continued to maintain tight control over our cost base, while making appropriate investments in our businesses, infrastructure and people, including our multi-year business transformation investment programme, which continues to make progress.”