Bank of Ireland would like to think the £143 million (€172 million) it has ringfenced to deal with a likely compensation scheme stemming from a regulatory examination into the UK motor finance sector will be a one-and-done affair.
Group chief financial officer Mark Spain told reporters on Monday that the estimate took into consideration the potential outcome of a test case before the UK supreme court, the work of the UK Financial Conduct Authority (FCA) as it weighs a redress scheme for the industry, and possible compensatory interest.
The £143 million is “our best estimate of our exposure as we issue the results today, based on all the information that we have”, he said. Bank of Ireland has a 2 per cent share of this market.
But has it drawn a line under the matter? Recent history, the provisions set aside by others, and some of the estimates in the market, suggest otherwise.
The UK test case and the FCA examination are both looking into whether UK motor finance customers were overcharged because of historical use of discretionary commission arrangements (DCAs) between car dealers and lenders. Such arrangements were banned in 2021 in the market.
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Bank of Ireland has landed midtable among UK lenders in terms of provisioning. Its £143 million provision equates to £71.5 million per percentage point it has of the market. Lloyds Banking Group, which is the biggest player in the industry, has set aside £82 million for every point it controls. Close Brothers, the lender behind the supreme court appeal, stands at £110 million per point. However, Santander UK is behind Bank of Ireland, at £59 million.
The final costs of the UK payment protection insurance (PPI) and Irish tracker mortgage scandals over the past decade-and-a-half also ended up being a multiple of banks’ initial provisioning.
The consensus view among analysts heading into Bank of Ireland’s results was that the UK car finance issue would end up costing it €370 million, according to RBC Capital Markets analyst Benjamin Toms.
His own base case, for what it’s worth, is almost double that.
