Bank of Ireland may increase UK motor finance provision to £350m

Bank of Ireland Group plc announced it may need to more than double its provision for UK motor finance redress to approximately £350 million (€400 million) from £143 million, following the Financial Conduct Authority's proposed industry-wide compensation scheme. This potential increase would reduce the bank's CET1 capital ratio by approximately 35 basis points. Bank of Ireland disputes the FCA's methodology, arguing it does not reflect actual customer loss or align with recent legal clarity, and plans to engage with the regulator during the consultation process, with the final provision to be updated in its fiscal year 2025 reporting.

Analysis

Bank of Ireland Group plc (BIRG) has announced a potential increase in its UK motor finance redress provision to approximately £350 million (€400 million), more than doubling the current £143 million. This significant adjustment stems from the Financial Conduct Authority's (FCA) proposed industry-wide compensation scheme, detailed in a consultation paper published on October 7, and reflects an "increased likelihood of a higher number of eligible cases" and the proposed redress methodology.

This substantial provision increase is projected to reduce Bank of Ireland’s CET1 capital ratio by approximately 35 basis points from the 16.0% reported on June 30, 2025. While committed to customer fairness, the bank disputes the FCA's methodology, arguing it does not accurately reflect actual customer loss or align with recent UK Supreme Court legal clarity, and plans to engage actively with the FCA during the consultation process.

The final cost remains uncertain, contingent on the consultation outcome, actual customer participation rates, and future legal or regulatory developments. The definitive provision will be updated during the bank’s fiscal year 2025 financial reporting. The strongly negative sentiment (-0.7 for BIRG) and cautious tone reflect the market's concern regarding this unquantified liability and regulatory dispute.

Key Decisions for Investors

• Monitor the FCA consultation outcome and Bank of Ireland's engagement, as the final redress cost remains fluid and subject to change.
• Assess the potential 35 basis point impact on BIRG's CET1 ratio in the context of its overall capital adequacy and peer comparisons within the banking sector.
• Evaluate the broader implications for other UK banks with significant motor finance portfolios, as this regulatory action could set a precedent for industry-wide liabilities.