AIB to refund €61m to personal and business borrowers

Group’s pretax profit down to €436 million, 43 per cent down on same period last year

AIB said that the additional tracker charge pushed the group’s pretax profit down.

AIB said that the additional tracker charge pushed the group’s pretax profit down.


AIB will refund €61 million to personal and small business customers after discovering problems with loan documents going back a decade, it said, just as the State’s banks are seeking to draw a line under the tracker-mortgage scandal.

The 71 per cent State-owned bank said in its first-half report, published on Friday, that it had taken a charge for the amount being refunded.

It has sent letters to tens of thousands of personal customers in recent weeks saying it had made a mistake in loan documents in cases where borrowers topped up existing loans through AIB branches. The bank incorrectly excluded interest outstanding on initial loans when drawing up new agreements to cover the top-up amounts, but continued to consider the amount as owed.

“Our documentation around the amount of interest carried forward could have been clearer and could have been more transparent. It fell short of our own standards,” AIB chief executive Colin Hunt told reporters. “We weren’t overcharging people. We were charging people the interest that was agreed. The issue is the transparency of the second document.”

Mr Hunt said the bank decided to take the hit on the amount, but declined to say how many customers have been impacted. Information posted on the issue on AIB’s website shows that individual borrowers will receive an average of €111.

Small to medium-sized enterprises (SMEs) that have been affected will be notified in September, bank officials said.

‘Legacy issues’

The €61 million charge was contained in €131 million set aside by the bank in the first half of this year, mainly related to what the bank called “costs and provisions associated with legacy issues”.

Some €43 million of the charge taken during the period covered likely regulatory fines, according to the company’s first-half report. Group chief executive Colin Hunt clarified in broadcast interviews on Friday that €35 million of this has been set aside for expected tracker-debacle fines.

AIB had previously set aside €265 million of provisions to date to cover refunds, compensation and other costs related to the industry-wide tracker mortgage issue. Both AIB and its EBS subsidiary are among six lenders currently subject to Central Bank enforcement investigations that will likely lead to fines.

AIB revealed earlier this month that the number of tracker cases on its books rose by 246 to 12,180 in the first five months of this year as the Central Bank completed its examination of the industry-wide overcharging problem.

The bank said its final payments were “almost complete” and that it would “continue to deal with any complaints or appeals if they arise”.

In May, Permanent TSB became the first mainstream lender to be fined for the tracker issue, when the Central Bank ordered it to pay €21 million.

AIB said the additional charge pushed the group’s pretax profit down to €436 million in the first half of the year, marking a 43 per cent drop on the corresponding period in 2018.

Loan book

Meanwhile, the bank’s net loan book grew marginally to €61.1 billion from €60.9 million, with net lending exceeding redemptions and the sale of a portfolio of non-performing loans (NPLs) which had a carrying value of €1 billion. It is understood that the original value of these loans was close to €3 billion.

New lending rose by 8 per cent to €6 billion during the reporting period, with mortgage lending growing at the same pace, to €1.3 billion, giving it a 31 per cent share of drawdowns in the market.

Non-performing loans at the bank fell to 7.5 per cent of gross lending at the end of June, from 9.6 per cent in December. The bank, which is understood to be considering a further loan disposal, aims to reduce its NPLs ratio to about 5 per cent by the year end.

The bank had a common equity tier 1 capital ratio – a gauge of financial strength – of 17.3 per cent at the end of June, well in excess of its 13 per cent medium-term target.

However, it revealed that some 0.9 percentage points may be shaved off its figure as it completes talks with the European Central Bank on its level of risk-weighted assets, the basis for the capital ratio.