Additional compensation to be paid by AIB over its part in the tracker mortgage scandal has increased “social risk” for the lender, while pressure is building on its earnings from the Covid-19 fallout, according to Moody’s Investors Service.
In a research note, the ratings firm said the additional payment for its EBS and Haven customers will weigh to some modest extent on the AIB's ratings but will likely have no implication for the assessment of those ratings at this stage.
“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,” according to Moody’s.
Its senior analyst Arif Bekiroglu said Moody’s expects AIB to post “much weaker earnings for 2020 because of interest margin pressure from low interest rates, low fee income generation, rising credit costs, limited new lending opportunities, and higher provisioning costs” even as provisioning rules allow new freedom to account for borrowers who are meeting their loan payments.
The additional €6m expense set aside for overcharged tracker mortgage customers at the EBS and Haven units was a “modest” amount compared with the €610m the bank has overall set aside for its part in the industry-wide tracker overcharging affair, including €70 million it has earmarked for enforcement costs, according to Moody’s.
It said AIB’s part in the tracker mortgage investigation increases its assessment of “social risks” which “generally have a moderate effect on banks' credit quality because banks' financial and operational flexibility and history of adjusting to emerging social issues generally act as mitigants”.
Analysts have said that the tracker scandal will cost the Irish banking industry €1bn in compensation to customers and fines from the Central Bank.
Shares in AIB - which is 71%-owned by the Government - were little changed in the latest session.
AIB shares have slid, however, by 68% in the past year as investors assess the amount of soured loans European lenders will take on board due to the sudden onset of the Covid-19 recession.
Irish banks, along with Irish property-related shares, were already among the worst-performing of their peers in Europe last year ahead of the Covid storm.
Bank of Ireland shares fell almost around 1% in the latest session and have shed 60% of their value in the past year.
The Government has a 14% stake in Bank of Ireland.
Permanent TSB - which is 75% owned by the Government - rose around 2% in the session.
Its shares have nonetheless fallen by 61% in the past year.