The Central Bank has started to investigate Ulster Bank over its treatment of customers who moved from tracker mortgages to homeloans with fixed rates in recent years. Ulster's parent, Royal Bank of Scotland, said on Friday that the Central Bank had notified the Irish unit earlier this month about the investigation.

The inquiry is proceeding under the Central Bank’s Administrative Sanctions Procedure under the Consumer Protection Code and focuses on the period between August 2006 and June 2008.

The Central Bank has been examining all lenders with respect to how transparently they communicated with tracker customers and how well those customers’ contractual rights were respected. Its review will be completed next year.

Separately on Friday, Ulster Bank said its operating profit for the first quarter declined by 6 per cent to €78 million in the Republic as income increased by 11 per cent to €205 million.

The bank said adjusted operating profit was stable at €82 million versus the same three month period last year and was €66 million higher than the preceding quarter.

Lending indicators

New lending indicators remain positive, largely due to improving economic conditions with new mortgage lending up 32 per cent versus the same quarter a year earlier.

Ulster Bank reported a non-recurring profit of €28 million relating to asset disposals, of which €14 million was reported in income.

The bank said excluding the benefit of asset disposals, underlying growth was partly offset by reduced income on free funds.

Net interest margin rose 9 basis points to 1.75 per cent over the quarter.

Total operating expenses rose by 7 per cent due to higher restructuring costs relating to asset disposals. Adjusted operating expenses remained flat at €136 million, despite a €6 million rise in regulatory levies, the bank said.

A net impairment release of €17 million was recorded on the back of assets disposals.

Ulster Bank reported a rise in staff costs due to the reallocation of 640 employees following the separation of the Northern Ireland and Republic of Ireland businesses.