Ulster Bank confirms exit from Irish market sparking scramble for loan books

The decision will dramatically lessen competition in the Irish banking sector and puts over 3,000 jobs at risk
Ulster Bank confirms exit from Irish market sparking scramble for loan books

Ulster Bank centre on O'Connell St in Dublin City centre. Picture: Gareth Chaney / Collins

The owner of Ulster Bank -- Britain’s NatWest Group - has confirmed it plans to wind down its operations in the Republic, a decision that will dramatically lessen competition and puts at risk around 3,000 jobs.

NatWest came to the decision after unexpectedly launching a review last year into the future of its 88 branches and €20bn in home loans and corporate lending in the Republic.

The decision to quit by the bank - which employs in all 2,800 staff, including people in Belfast and in Edinburgh working in support operations - is unprecedented for a major player in Irish banking and will further strengthen existing lenders, in particular the dominant banks AIB and Bank, which command well over 50% of all mortgage lending. 

Ulster Bank is to stay open in the North, however.

NatWest said it had decided that Ulster Bank in the Republic will not be able to make good returns any time soon and it “will begin a phased withdrawal from the Republic of Ireland over the coming years”.

It revealed Ulster made an operating loss of €255m last year as its impaired loan losses climbed to €281m, as a result of the Covid-19 crisis.

The decision to quit has already launched a scramble for parts of its loan books from rival banks.

Ulster Bank said AIB will buy €4bn of its commercial loans, with a final agreement over price still to be struck.

It also said it was in early talks with Permanent TSB and other unidentified “strategic banking counterparties” over the sale of other loans.

“Our preference is to continue to focus our discussions with counterparties who can provide customers with full banking services in the Irish market,” it said in a statement that did not rule out selling loans to the so-called vulture funds.

"Difficult day"

Finance Minister Paschal Donohoe said the decision marked "a very difficult day for Irish banking". Other lenders would be approached to assess their interest in acquiring loans from Ulster, Minister Donohoe said.

Experts have said the decision to exit will mean that there is little chance that the cost of mortgage and borrowings to small firms -- which are already among the highest in Europe -- will fall any time soon.

John O'Connell, general secretary at the Financial Services Union, said it was "a very bad day".

Pearse Doherty, Sinn Féin finance spokesperson, said it was important that the Ulster Bank loans are not sold to vulture funds.

He expected other existing banks to look at buying the loans but said that he was "disappointed" that other lenders, apart from AIB, had not bid for the large commercial loan book.

Economists and banking consultants have called on the Government to set up a State-owned bank to plug the gap that will be left by Ulster Bank’s departure and bring in legislation to cap the cost of borrowings for mortgage and corporate borrowers.

Ulster Bank chief executive Jane Howard said the decision by its parent was “hugely disappointing”.

Ms Howard said the bank was phasing out its operations over time and there was no reason for borrowers or depositors to take action at this time. Ulster Bank holds around €22bn in deposits.

She said it “will be a difficult and worrying time for our colleagues across the bank. It may also lead to customer questions and concerns as to how this decision may impact them and their day-to-day banking needs".

Mortgage impact

The exit of Ulster Bank from the Republic marks a crisis on par with the banking crisis of 10 years ago, with grim consequences for mortgage and business customers of all lenders, leading industry figures and banking economists have warned.

Experts said its decision to wind down its operations in the Republic marks a “catastrophe” for an already dysfunctional and high-cost banking market, and that the carving up of the lender’s €20.5bn of loans between vulture funds and existing players like AIB will likely only make matters worse.

'Incredible cruelty'

The Financial Services Union last night said that it was an “incredible” act of corporate cruelty for NatWest to have kept the future of Ulster Bank’s 2,800 staff in the Republic and 600 people in Belfast on tenterhooks since it emerged in September that the lender’s operations were up for review.

State-owned lenders AIB and Permanent TSB (PTSB) have already made plans to bid for billions of euros worth of loans Ulster Bank holds from Irish small and larger corporate customers, while PTSB may also be interested in buying parts of the home mortgage book, it has emerged.

A wide range of industry experts, consultants, economists, and academics have told the Irish Examiner that Ulster’s departure will inevitably lock in the costly mortgage and business interest rates that are already among the highest in Europe.

Numerous experts have said the Government will have to go far beyond mere talk of setting up “a third banking force” — which was first mooted as long ago as the 1990s — to counter the dominance of AIB and Bank of Ireland, and instead set up a new State bank for home loans and SME lenders.

'Second crisis'

Senior economist Jim Power said Ulster Bank’s departure creates the second banking crisis for the Government and the economy in 10 years.

The State will have to get involved in some way because the Irish banking market has not been working for a long time, he said, urging the introduction of emergency legislation in the short term to cap interest rates for mortgages and loans to small firms, “or whatever it takes — the State has got to get involved”, Mr Power said.

The two big players already have almost 60% of the mortgage market between them, so the remaining five players will be fighting over the rest, and Ulster’s 14% of the home loans will be up for grabs, said Michael Dowling, a leading mortgage broker.

Mr Dowling said the news of the Ulster Bank review was already having a big effect on competition, and that, since September, he has advised customers that Ulster’s competitive mortgage loans could fall into the hands of AIB, Bank of Ireland, or a vulture fund.

“The State will have to create a State bank or offer a sweetheart deal for someone else to step in,” said John Whelan, managing partner at the Linkage-Partnership. “I know they don’t like to do it, but when there has been a market failure, the Government has to step in.”

Market failure

Banking expert Ray Kinsella, formerly a professor at the UCD Smurfit Business School, said he has long believed a new start is called for in Irish banking, with the Government needing to step in to create a national bank that is not required to return dividends to shareholders.

Dermott Jewell, policy adviser at the Consumers’ Association of Ireland, said that attracting new players had proved incredibly difficult since the financial crash.

He said there has been a market failure, and the Government will have to intervene in some way.

Teeling Whiskey founder John Teeling said: “An exit introduces more uncertainty at a time of economic stress.”

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