Compensation to cost NIB about €18m

Compensation payouts to customers who were sold CMI and other offshore investment bonds are expected to cost National Irish Bank (NIB) about £14.3 million gross (€18.16 million), an average of about £30,000 per customer involved, according to chief executive Mr Don Price.

Reporting annual results, he said payments to put right the "problems" of the 1990s - misselling of tax-driven offshore investment policies, and interest and fee overcharging - and investigation and legal expenses incurred would cost NIB a total of £29 million.

A £13.2 million net charge for payouts to CMI and other offshore policy customers and legal, investigation and restructuring costs meant a 27 per cent drop in pre-tax profits to £7.3 million in year to end-September. When the exceptional charge was excluded, underlying profits were up 21 per cent on £20.5 million, boosted by good growth in lending and a lower bad debts charge.

Mr Price said the bank had contacted 480 offshore bond customers and had 300 replies. Settlements involving payouts totalling £2 million have been made to 70 customers. On this basis, the provision of £14.3 million was calculated which NIB expected to be the final cost of the scandals. Some 50 customers have initiated legal compensation proceedings.

"It has been a costly experience but the message is we are working our way through this. We cannot undo what has happened but we are trying to put right what is within our control," he said. NIB has still to face the report due early next year of court-appointed inspectors following a three-year investigation into its affairs from 1988 including improper charging and whether any other unlawful or improper practices existed.

Results for the year to end-September show a 15 per cent rise in lending to £1.7 billion, comprising a 19 per cent rise in business lending, a 12 per cent increase in mortgage lending and a 14 per cent rise in credit card lending. On the deposit side, saving balances were up 5.2 per cent to £1.4 billion. Margins were under pressure, he said, on the deposit side.

Defending the decision to reduce the bad debt charge to £3.4 million, chief operating office Mr John Trethowan said attention to credit quality and credit skills had ensured prudent loan growth.