Tracker scandal costs weigh more on smaller banks, says ratings agency DBRS

The costs of dealing with Ireland's tracker-mortgage scandal is being felt more by smaller banks, Permanent TSB, Ulster Bank and KBC Bank Ireland, than the country's two main lenders, according to an analysis from Canadian debt ratings agency DBRS.

Based on the provisions that banks have set aside to cover redress, compensation and their own costs relating to the tracker overcharging controversy, DBRS noted that the average cost stood at €73,232 per PTSB customer, compared to €19,947 at Bank of Ireland. AIB's average cost currently is €20,208, while KBC Bank Ireland's is €40,350 and Ulster Bank, €60,286.

The agency puts much of the discrepancy down to some lenders, like Bank of Ireland, having a larger proportion of "high-volume, low-impact" cohorts of affected customers. More than a third of the 9,400 impacted Bank of Ireland customers, for example, were being overcharged by 0.15 percentage points above their tracker rate, rather than being outright denied a low-cost tracker mortgage linked to the European Central Bank benchmark rate.

“Additionally, DBRS understands that provisions taken, typically include overhead administration costs in relation to the redress projects (staff costs, systems costs, potential fines, etc.) leading to cost disadvantages for smaller institutions in terms of scale economies,” the debt ratings firm said.

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Two years after the Central Bank ordered banks to find borrowers who were either wrongly denied low-cost mortgages linked to European Central Bank rates or put on the wrong rate, the regulator revealed in December that since September the number of customers hit by the scandal had surged by 13,600, or two-thirds, to 33,700.

Ireland’s five main banks, which account for more than 99 per cent of all identified tracker overcharging cases in an industry-wide problem, have so far signalled the controversy will cost up to €890 million to resolve.

That equates to about 30 per cent of the €2.6 billion of annualised income before provisions and taxes the five banks are estimated by DBRS to have made last year.

“DBRS does not foresee any adverse rating impact from the tracker mortgage examination for Irish banks,” it said, noting that it, like many analysts, see the final cost potentially topping the €1 billion mark.