AIB’s redress bill for tracker mortgages is hiked to €260m
AIB’S bill for rectifying the tracker mortgage scandal now stands at €260m – around a quarter of the entire cost to the financial sector. The bank posted financial results showing a €762m pre-tax profit for the first of the year - including a one-off €140m gain from the sale of problem loans.
AIB took a charge of €32m in relation to the tracker mortgage scandal in the first half of the year. AIB’s chief executive Bernard Byrne said he believes the €260m now set aside to cover the costs of repaying and compensating customers who were wrongly kept from cheap tracker rates, will fully cover the issue.
The bill - set at €190m when the scale of the issue initially became clear in 2015, has risen as new cohorts of affected customers have come to light. In June, EBS, the former building society that is now a subsidiary of AIB, returned 500 residential mortgage account holders to valuable tracker rates.
Yesterday, Mr Byrne said 96pc of customers affected by the tracker mortgage issue have received payments from the bank, and that over the next six weeks all impacted customers would have received payments.
However, appeals by individuals unhappy with settlements offered will run into next year, he said.
Latest results show AIB’s loan book continued to shrink this year - down €100m to €59.9m in the first six months of the year, that result includes the sale of problem loans. Mr Byrne said that its performing loans had grown by €2bn in the same period.
The bank’s non-performing loans now stand at €7.5bn, down from €10.2bn at December 2017. These loans represent 12pc of the bank’s gross loans, down from 16pc in December.
The bank said that it remains on track to achieve a normalised non-performing loan level by 2019. A bad-loan stock of about 5pc of assets is something EU regulators have demanded before the bank can pay special dividends to shareholders.
The bank still plans to return excess capital to shareholders - most notably the State - even after the Central Bank this month forced all Irish lenders to build capital by retaining a greater share of earnings as a buffer against potential losses, chief financial officer Mark Bourke said. The move had not increased the bank’s cost of capital, he added.
However, he said that if the level of capital the bank must hold continued to be increased by regulators in Dublin and Frankfurt the issue would have to be revisited.
Meanwhile, KBC Ireland may follow AIB in looking to sell non-performing loans, according to Germany’s Scope Ratings, something KBC has avoided to date.
Increased pressure from regulators to clean up bank balance sheets “might warrant KBCI’s management reconsidering its stance,” Scope Ratings analyst Chiara Romano said in research note published Friday.
“KBC has fundamentally transformed the value proposition for its Irish franchise, come up with a new digital strategy and returned to profitability. However, legacy NPLs represent a challenge and portfolio sales may have to become part of the solution.”
In a positive assessment of KBC’s strategy and prospects Ms Romano said “Of the main factors shaping KBC’s strategy in Ireland, we regard the combination of demographic factors - a high proportion of young, educated individuals, and strong mobile banking penetration - as pivotal to KBC’s success in the retail market.”
KBC bank has transformed the value proposition for Irish franchise