Ulster Bank paying €500m dividend to Royal Bank of Scotland

Ulster Bank said on Tuesday that it was paying a €500 million dividend to its parent, Royal Bank of Scotland, as it continued to dip into its excess capital reserves to return some of its bailout money.

The latest instalment bring to €3.5 billion that has been repaid by way of dividends to RBS since late 2016. The total figure is the equivalent of almost 20 per cent of the £15 billion (€17.7 billion) that Ulster Bank received from RBS during the financial crisis.

The bank’s common equity Tier 1 capital (CET1) ratio - a key measure of a bank’s reserves that are there to withstand a shock loss - will remain the highest among the country’s five remaining banks, at 27 per cent, after the payment. The wider RBS group has a medium-term target ratio of about 14 per cent.

"With a 27 per cent CET1 ratio, Ulster Bank still has significant wherewithal to continue paying capital to its parent," said Eamonn Hughes, an analyst with Goodbody Stockbrokers.

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Capital demands

The regulatory capital pressures on Irish lenders continue to rise after the Bank of England said on Monday evening that it was increasing the amount of capital it demands that banks must set aside for protect them from a sudden downturn. The regulator increased the so-called countercyclical capital buffer requirement for the end of next year from 1 per cent of risk-weighted assets to 2 per cent.

Davy analysts Diarmaid Sheridan and Stephen Lyons estimate that this will likely contribute to Bank of Ireland and AIB, both of whom have UK businesses, increasing their own CET1 management targets by half a percentage point each to 15.5 per cent and 14 per cent, respectively. The internal targets will also be fuelled by an expected introduction of a systemic risk buffer by the Central Bank of Ireland next year.