Bank of Ireland and AIB carve-up plans 'could be blocked by competition watchdog'

Bank of Ireland at Dunmanway, West Cork

Plans by Bank of Ireland (BoI) and AIB to carve out billions of euro in mortgage and corporate loans from rival lenders KBC and Ulster Bank could likely be scuppered by the State's competition watchdog, a leading Irish law expert has predicted. 

Ronan Dunne, partner and head of EU and competition law at Philip Lee, told the Irish Examiner it won't be plain sailing for the plans Bank of Ireland first unveiled in April to take almost €9bn worth of mainly mortgage loans from KBC as the Belgian banking giant tries to quit banking altogether in the Republic. 

Bank of Ireland and KBC on Friday said they had put their April agreement on a firmer footing. KBC's decision this spring to follow Ulster Bank and quit the banking market in the Republic had shocked politicians and experts, who say that Bank of Ireland and AIB will further increase their grip and disadvantage customers here.    

However, Mr Dunne said the intervention earlier this week by the Competition and Consumer Protection Commission, or CCPC, putting the Bank of Ireland plans under the scrutiny of its full so-called Phase 2 investigation should not be downplayed. 

In any one year there was only a small handful of Phase 2 investigations and six months into the process the watchdog has now decided there are substantive competition issues involved in Bank of Ireland acquiring more mortgage loans, Mr Dunne said.  

Rather than imposing conditions, the CCPC will seek to negotiate with the parties if it identifies there are competition concerns, Mr Dunne said. 

"In a worst-case scenario it could be divestment of certain elements of the KBC business to an appropriate third party. That is not an impossibility," he said.  

The best outcome for Bank of Ireland was for it to persuade the CCPC there were no competition issues, "but quite often when Phase 2 is opened there is a good possibility that there would need to be some sort of agreement entered into", Mr Dunne said.       

With Bank of Ireland currently involved in two other transactions, a payments app joint venture and its plan to buy back Davy Stockbrokers, "competition, it is fair to say, is front and centre of the banking market at the moment", Mr Dunne said.     

Mr Dunne said that based on AIB's dominance it was likely that AIB could also face a similar Phase 2 probe for its plans to carve out corporate loans when Ulster Bank completes its exit.    

Relatively smaller Permanent TSB, which has plans to acquire the bulk of Ulster's mortgage loan book, may mean that it is not subject to a full-scale investigation by the competition commission, however, said Mr Dunne. 

Nonetheless, Permanent TSB is the third-largest mortgage lender and is also due to benefit hugely from the departure of Ulster and KBC. Both lenders had consistently competed with AIB and Bank of Ireland by offering among the lowest mortgage rates in the market. 

Central Bank surveys repeatedly show Irish banks charge mortgage customers and small firms among the most expensive loans in the eurozone.