ECB fines AIB and EBS unit €615,000 over capital miscalculations

The European Central Bank (ECB) has fined AIB and its EBS subsidiary a total of €615,000 for miscalculating its capital needs over a two-year period.

The errors occurred between March 2014 and March 2016 and were self-notified by the bank to regulators “as soon as the issue was identified”, AIB said in a statement.

“The breach had no impact on customers and no impact on the group’s consolidated capital ratios,” the bank said, adding that it restored compliance with rules after the issue was discovered. “We have since strengthened our controls to prevent any recurrence.”

AIB was fined €420,000, while EBS, which the bank took over in 2011 under a government direction in the middle of the financial crisis, received a penalty of €195,000.

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“The ECB assessed the impact of the breach as ‘medium’ based on the effect that the breach had on the prudential situation of the entity, as determined on the basis of the extent of the entity’s deviation from the legal requirements and the duration of the breach,” the ECB said in a statement on AIB.

"The degree of the entity's misconduct was also assessed as medium, taking into account, on the one hand, its misinterpretation of a clear and unambiguous legal provision which remained undetected over a long period of time and, on the other hand, the proactive behaviour of the Allied Irish Banks plc."

The bank calculated lower levels of risks attached to certain “equity exposures” for nine consecutive quarters, which had the effect of it reporting higher capital levels than it should have during the period.

The ECB said it considered “several mitigating factors” when coming up with the fine, “in particular, the co-operation shown with the ECB as well as the remedial actions taken on its own initiative, also to prevent similar breaches in the future”.

No challenge

The ECB's decision to impose an administrative penalty on AIB and EBS may be challenged before the Court of Justice of the European Union. However, the bank has said that it will not be challenging it.

AIB reported last month that its common equity Tier 1 capital ratio, a key measure of capital reserves against risk-weighted assets, rose to 16.4 per cent from 15.6 per cent at the end of December. The figure is well in excess of the 13.5 per cent medium-term target it has set for itself as well as regulatory requirements, underpinning analysts’ estimates that the bank will start returning excess capital to shareholders, led by the Government, with its 71 per cent stake, after the Covid-19 crisis.

The bank posted a €291 million profit for the first half, compared with a €909 million loss for the year-earlier period, and helped as it freed up €103 million of loan impairment provisions. This compares with a €1.22 billion charge taken in the first half of 2020 as banks prepared for a spike in defaults as a result of the pandemic, which has yet to materialise.