October 26, 2017 / 12:40 PM / a year ago

Bank of Ireland says mortgage compensation costs manageable

DUBLIN, Oct 26 (Reuters) - A rise in capital levels mean Bank of Ireland could cope comfortably if it has to set aside more money to compensate overcharged mortgage customers, it said on Thursday.

Irish lenders have been put under pressure to speed up the redress and compensation for some 20,000 borrowers who for years should have had cheaper mortgage, and the government has warned it will impose penalties if progress is not made by December.

Bank of Ireland, which has set aside 25 million euros ($29 million) in provisions to deal with the issue - less than the other four retail banks - has said it will continue to review whether other customers should be included for compensation.

“To the extent that an additional provision associated with this review is required, the group anticipates this to be manageable in the context of the group’s capital position,” it said in a trading update.

Bank of Ireland said its core tier 1 capital ratio - a key measure of financial strength - stood at 12.8 percent at the end of September under Basel III industry rules, up from 12.5 percent three months earlier.

Owen Callan, an analyst at Investec Ireland, said that would likely more than cover the outer limit of his estimate that additional provisions of 25 to 125 million euros - equivalent to between 5 and 25 basis points of capital - may be required.

Investec and Davy Stockbrokers both said the bank’s comments on provisions implied it would not be constrained from resuming dividend payments as planned for the first time since the financial crisis early next year.

Bank of Ireland said it had taken a further capital deduction in the third quarter to facilitate a payout.

Banking analysts have said they do not see any additional costs as being material for Irish lenders and shares in the sector recovered after the five main retail banks laid out varying timetables for compensation on Wednesday.

Shares in Bank of Ireland were 3.5 percent higher at 6.51 euros by 1200 GMT after the bank also said it was trading in line with expectations. New lending rose three percent year-on-year, including a 38 percent jump in the fast-recovering Irish mortgage market.

Investors also shrugged off the range of potential penalties Ireland’s finance minister threatened on Wednesday.

“The threat of political intervention remains, yet we do not anticipate that such measures will ultimately be required,” Davy analysts wrote in a note.

$1 = 0.8508 euros Reporting by Padraic Halpin; Editing by Mark Potter

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