AIB is to set aside a €300m provision in its 2019 results to meet potential further liabilities arising from its involvement in the tracker mortgage controversy.
The move follows a preliminary decision issued by the Financial Services and Pensions Ombudsman in relation to one of a group of 5,900 AIB customers who were denied a tracker mortgage.
The customers had been on a fixed rate and on expiry of that, they should have been offered the option of another fixed rate, a standard variable rate or a tracker at the prevailing rate.
However they were not offered the tracker option.
AIB had argued that it had stopped issuing new tracker mortgages at that point and in any event, the tracker rate was so high that it was unattractive.
The bank had originally identified the 5,900 customers as part of its tracker examination and offered them €1,000 in compensation and €615 for legal or financial advice.
But at least one customer appealed that decision to the FSPO and his preliminary decision appears to have come down on the side of the claim rather than on the bank's.
This has led the board of the bank to conclude that redress may be due to the entire group of customers.
A number of different outcomes are possible, arising from the situation, AIB said in a statement.
But in recognition of these possibilities, the board has decided to set aside €300m in the 2019 full financial year.
This is in addition to the €272m that the bank had previously set aside to cover compensation, redress and other costs associated with the controversy.
"The Board also recognises it is in the interests of the Group, our customers and our other stakeholders to bring this matter to a resolution and discussions are ongoing with the Central Bank of Ireland with regard to potential appropriate treatment of this group of customers," it said.
The bank also said that the board expects to propose an ordinary dividend in line with its approach of between 40-60% of attributable earnings.
"The Group maintains a capital position above regulatory capital requirements and will record a CET1 ratio in excess of 16% at 31 December 2019," it said.
AIB is due to announce its full year 2019 financial results on 6 March.
The bank's handling of the tracker mortgage controversy is currently also being probed by the Central Bank of Ireland's (CBI) tracker enforcement investigation.
It was hit with a €21m sanction by the regulator in respect of "serious failings" which affected 2,007 of its tracker mortgage customer accounts.
In total lenders have paid out €683m in redress and compensation to 40,100 customers affected by lenders' failings over the tracker mortgage issue.
These failings included some customers being denied tracker mortgages when they were entitled to them, or put on the incorrect rate.
Padraic Kissane, a financial adviser who has worked with many tracker mortgage customers caught up in the affair, said there are similar cases in a number of the other banks.
These include Permanent TSB, KBC Bank Ireland and Ulster Bank.
Mr Kissane said there are individual aspects to many other cases that could be impacted by the FSPO preliminary decision, if it is confirmed.
"All-in-all, whilst AIB had previously highlighted this customer cohort as a possible risk, the revelation of a potential €300m provision is obviously very disappointing," said Eamon Hughes, analyst at stockbroker Goodbody.
"The provision comes as a surprise given our understanding that the industry-wide Tracker Mortgage Examination (TME) had moved on to the enforcement stage," said stockbroker Davy in a research note.
"The magnitude of the provision represents a further unwelcome regulatory hit to AIB's surplus capital and returns potential."
"Furthermore, the timing of the announcement in the last week of the general election campaign and ahead of a three-way leadership debate this evening also heightens political concerns for the sector."
Shares in AIB closed 4.1% lower in Dublin having at one stage fallen by as much as 5%.