Bank of Ireland set aside a provision of £143 million (€172 million) for a potential compensation scheme stemming from a regulatory examination of the UK motor finance industry.
The charge drove a 4.2 per cent decline in the group’s pretax profit, to €1.86 billion, as its net interest income also dipped, by 3 per cent to €3.57 billion, as official interest rates declined, it said in a statement on Monday.
The net interest income was in line with company forecasts and was underpinned by 6 per cent growth in Irish loans and 6 per cent expansion in deposits.
Looking ahead, Bank of Ireland expects net interest income to come in at greater than €3.25 billion, as interest rates continue to fall. However, it sees business income, which advanced 4 per cent to €764 million in 2024, rising by 5 per cent this year.
The UK motor finance market, in which Bank of Ireland has a 2 per cent share, was thrown into disarray last October when the court of appeals in London ruled that motor finance brokers must fully inform customers about the existence and size of commissions when taking out car loans, amid a wider review by the UK Financial Conduct Authority (FCA) into historical practices in the industry.
An attempt by UK chancellor Rachel Reeves to intervene in a landmark Supreme Court appeal was quashed by the court last week. Still, some lawyers have said the government could still lean on the FCA to limit the scope of any compensation scheme, as it seeks to ease the burden on businesses.
Lloyds Banking Group, the largest player in the UK car finance market, disclosed last week that it had aside a further £700 million (€843 million) of provisions, on top of the £450 million already earmarked.
“We expect further clarity on this matter during 2025,” Bank of Ireland said in its annual report.
The bank has moved to increase annual cash distributions to shareholders by 6 per cent to €1.22 billion, comprised of €630 million of dividends and €590 million being allocated for a share buyback. The total package equates to 80 per cent of its net profit for 2024 and 14 per cent of its market value as of the end of the year.
“In 2024, the group delivered a very strong performance,” said chief executive Myles O’Grady. “The Group enters 2025 with momentum across all business lines. Notwithstanding potential impacts to global trade, our business model continues to be highly capital generative for the coming year and beyond, supporting customer growth, business model investment and attractive shareholder returns.”
