What the loss of Ulster Bank would mean for consumers

Ireland's banking sector has already lost Bank of Scotland, Danske Bank, Rabobank, Anglo Irish Bank and Irish Nationwide
What the loss of Ulster Bank would mean for consumers

'If we are to lose a bank established in 1836 which opened its first office in Dublin in the 1860s, the impact will be negative for our economy.' Picture: Sasko Lazarov

When news broke on Friday that NatWest, parent of Ulster Bank was considering the winding down of the Bank, the market was surprised. 

It had announced the week previous that it was cutting 266 of its 2,800 workforce in an attempt to cut costs but this exercise was also being undertaken by AIB, who are culling 1,500 jobs and Bank of Ireland who are seeking 1,400 redundancies. KBC are seeking 20 redundancies.

In fact, Deloitte reported recently that up to 7,000 jobs will be lost in the banking sector over the next five years.

The banking sector has lost Bank of Scotland, Danske Bank, Rabobank from the retail side and Anglo Irish Bank and Irish Nationwide as well. If we are to lose a bank established in 1836 which opened its first office in Dublin in the 1860s, the impact will be negative for our economy. Ulster Bank has a 14% share of the mortgage market, 20% share of SME lending as well as a strong corporate banking franchise. It holds €22bn in deposits.

Competition is the lifeblood of any economy. Look at the grocery sector with the advent of Aldi and Lidl. The airline sector, with the introduction of Ryanair, revolutionised air travel and made it affordable for everyone. 

The two pillar banks have nearly 60% of the mortgage market and if ever an example was available of why we need Ulster Bank and need competition, look at what happened this week when Avant Money entered the mortgage market.

Avant Money is offering mortgages at 1.95% fixed for 3, 5 or 7 years. With such a dominant position the two pillar banks sat back – Bank of Ireland with the dearest variable rates (3.90% - 4.5%) and fixed rates (3% - 3 or 5 year) on the market did nothing. 

AIB took the opportunity to reduce their 3 and 5 year fixed rates by 0.1%-0.2% but actually introduced tiered fixed rates, so first time buyers are now being charged more than other borrowers, a position that was not the case last week. In fact, Permanent TSB did exactly the same three weeks ago.

Last week, The Central Bank confirmed the average mortgage interest rate in Ireland was 2.86% compared to 1.35% in Europe and deposit rates in Ireland average 0.02% (€118bn on deposit at Aug) compared to 0.26% in Europe.

Ulster Bank carries the legacy of being the first bank to introduce 100% mortgages in Ireland in 2005, something I was highly critical of, at the time. We know the consequences of this policy. It has had a number of significant IT issues over the last five years and in 2019, had the highest number of complaints, 21 upheld by the FSPO against any financial institution.

However, Ulster Bank is relevant, is needed and one can argue is systemically important. The Government must engage with NatWest to protect competition in the market place.

Michael Dowling is a mortgage broker and debt adviser.

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