Ulster Bank profits plunge on €211m charge amid tracker review

Ulster Bank's operating profit plunged last year as it set aside €211 million for litigation and conduct costs, mainly associated with an industry-wide investigation into how lenders wrongly denied customers low-cost tracker rates.

Operating profit fell by €338 million to €24 million, also impacted as Ulster Bank freed up less money previously set aside for bad loan losses than it released in 2015, the bank's UK parent Royal Bank of Scotland said as it revealed its 2016 results.

The Central Bank governor, Philip Lane, indicated in December that up to 15,000 mortgage holders across a number of existing and former mortgage providers in the Republic were overcharged. Borrowers were typically caught out as banks failed to fulfil borrowers' contractual entitlements to return to a rate that tracks the European Central Bank's main rate, after a period on a fixed rate.

Ulster Bank and Permanent TSB are the only two lenders known to be currently in the middle of enforcement proceedings with the Central Bank in relation to the tracker-rates issue.

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In November, the regulator fined Permanent TSB's former subprime unit Springboard Mortgages €4.5 million for overcharging. Further actions are likely, as 15 lenders are subject to the review.

Ulster Bank said in a separate statement on Friday it has restored 1,885 customers to ECB tracker rates.

"As previously indicated, we do expect to indentify more impacted customers and we are working through this process with the Central Bank as a matter of urgency," said Ulster Bank chief executive Gerry Mallon, who joined the bank last year.

Elsewhere in the sector, AIB set aside €190 million in 2015 to cover costs associated with the tracker-rates issue, while Permanent TSB set aside as much as €145 million in recent years to cover redress, legal and compliance issues, understood to be largely related to mortgage contract breaches. Bank of Ireland chief executive Richie Boucher said in a Newstalk radio interview that his bank has put an initial €25 million aside for the issue, but is not able to determine the final cost as it is in the middle of the review.

Ulster Bank signalled in November it was preparing to pay its parent, Royal Bank of Scotland, a €1.5 billion dividend, marking its first such distribution since the financial crisis. RBS had bailed out the Irish unit to the tune of £15 billion (€17.8 billion) during the financial crisis – equivalent to a third of the money the Edinburgh-based group received from the UK government in 2008.

Operating profit

Stripping out the charge for litigation and conduct issues, Ulster Bank’s operating profit fell by 23 per cent to €280 million, marking its third year of profits in a row, following years of heavy losses during the financial crisis.

The bank’s net interest margin, the difference between the average rate at which it funds itself and lends on to customers, rose by 0.05 percentage points to 1.62 per cent during 2016.

Ulster Bank released €138 million of loan loss provisions set aside earlier in the crisis, as its level of defaulted loans reduced and the economy continued to improve. It had freed up €194 million of such reserves in 2015.

Meanwhile, Ulster Bank indicated that small business customers of the group's now-defunct Global Restructuring Group that were impacted by complex charges between 2008 and 2013 will be entitled to redress. RBS announced its complaints review programme for such customers in November. Ulster Bank has begun to write to impacted customers and plans to complete initial contacts by the end of March, it said.