The scale of Ulster Bank's losses show that the lender is not profiteering from interest on payment breaks offered to help customers cope with the pandemic, CEO Jane Howard told the Irish Independent yesterday.
The bank reported an operating loss of €276m for the first half of the year, largely driven by impairment charges based on an anticipated spike in bad loans.
The loss for the first half is roughly equal to a net impairment charge of €278m for the period, that reflects the lender's assessment of the likely losses that will eventually flow from the pandemic.
Ulster Bank's impairment charge shot up sharply in the second quarter of the year, but had been relatively smaller than AIB or Bank of Ireland's in the first quarter.
Unlike in the 2008 crash banks now have to look forward and estimate potential losses as best they can when they make such impairment charges, where in the past lenders would report rising bad loans after they occurred.
One reason there has not been a spike in bad loans so far this year has been the rapid roll out of three- and six-month payment breaks for customers struggling financially.
Ulster Bank said 16,800 personal and business customers have now availed of a payment break. Of those who initially got a payment break in March and April less than 60pc of personal customers opted to extend that for a second three months, Ms Howard said.
Ulster and other banks have been accused of seeking to profiteer by continuing to add interest while loans are not being repaid. The bank had been "absolutely transparent" about the costs, she said.
The break was designed to provide breathing space when it was needed, she said. The cheapest option for customers is to overpay loans once they come off the payment break so that the life of their mortgage is not extended, pay it back over the remaining mortgage period, or most expensively extend the mortgage period, she said.
The cost of payment breaks is being passed on to the customers who benefit, she said.
"Its very reasonable. Look at our results today, the bank is not going to be making money out of Covid-19."
The bank's income fell to €285m for the six months from €324m a year ago.
New lending slid while customer savings rose. With interest rates at a historic low, that will further squeeze the bank's key net interest income ratio.
Ms Howard said that the cost pressure on the bank was being made worse by the effects of the pandemic.
The bank's cost-to-income ratio of 98pc is too high, she said. Covid has added some costs including to resource the team dealing with payment breaks and retain an arrears support unit that is expected to be needed next year, while there is no plan to shrink the branch network, she said.
Ulster Bank's losses fed into parent NatWest's first half pre-tax loss of £770m (€856m). The UK banking group, known as RBS until this month, took an impairment charge of £2.86bn in the first half to cover expected loan losses.