The requirement for AIB to compensate an additional 1,100 of its customers who were placed on the incorrect tracker mortgage rate is "credit negative", particularly from a social risk perspective, ratings agency Moody's said as it forecast much weaker earnings from the bank this year compared to 2019.
On July 13th, the Central Bank of Ireland indicated that it expects AIB to compensate those customers who were also wronged as a result of the tracker mortgage scandal.
The bank has estimated that average compensation will be about €6,000, meaning compensation will total about €6.6 million.
“Although the expense is modest, it is credit negative for AIB, particularly from a social risk perspective, as well as the additional pressure it puts on its bottom line amid low credit demand and increased loan-loss provisions in the coronavirus-induced recession,” Moody’s said in a note.
The compensation will go to customers with tracker mortgages from AIB subsidiaries EBS an Haven Mortgages, which AIB identified as being charged the wrong margin over the European Central Bank rate. The incidents date back to 2006.
Modest expense
Moody’s noted that the €6 million expense is modest relative to AIB’s total tracker provision of €610 million.
“Given AIB’s solid capital and sizable provisioning reserves for tracker mortgages, the bank is in a position to accommodate potential regulatory fines and mortgagors’ compensation,” Moody’s said.
However, it noted that the Central Bank’s investigation reflects a social risk “to which banks are exposed”. Those risks, the ratings agency said in a previous report, have a moderate effect on banks credit quality.
The ratings agency also noted that it expects “much weaker earnings” from the bank this year. It cited “interest margin pressure from low interest rates, low fee income generation, rising credit costs, limited new lending opportunities and higher provisioning costs” for its forecast.
