AIB confirms sale of British SME book to Allica Bank

AIB confirmed on Tuesday it has agreed to sell its British small-business loan book to London-based challenger lender Allica Bank.

However, the £600 million (€715 million) size of the portfolio is smaller than the most-recently £1 billion reported size of the book.

The transaction will lead to 300 job losses, sources said. They will fall under the group’s ongoing plan to cut a total of 1,900 roles between 2020 and 2023. The additional impact of an insourcing of 400 positions, mainly in information technology, will result in a net of 1,500 job losses.

AIB chief executive Colin Hunt announced last December that the bank was retrenching from the British SME market, while doubling down in corporate lending in niche areas such as renewable energy, manufacturing and warehousing.

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Allica Bank, which is backed by London investment firm Warwick Capital Partners, received full UK banking authorisation in late 2019 and went on to hire its chief executive, Richard Davies, last year from Revolut.

The bank said last month that it had extended more than £600 million of loans to SMEs since it opened its doors in March 2020 and it was “laser focused on growing this to multiple billions over the coming years”.

AIB’s exit from the labour-intensive SME segment of the British market will save the bank an estimated €35 million in the coming years.

This transaction relates to Great Britain-based SME customers only. The asset finance, invoice discounting and merchant services businesses in Great Britain will continue to operate as previously, AIB said. Customers in Northern Ireland are not affected by the deal.

Migration of loans on phased basis

Subject to regulatory approvals, migration of the loans will be on a phased basis, with the process expected to commence by the end of this year and complete over the course of 2022.

AIB said it plans to use the proceeds of the sale for “general corporate purposes”. The sale is expected to boost AIB’s capital reserves “marginally”. In the year ended December 31st, 2020, the loan portfolio incurred a loss before tax of about £9 million.

The wider AIB group reported a pre-tax profit of €933 million last year, after it booked €1.46 billion of loan-loss provisions as a result of the Covid-19 pandemic on the economy.

In a separate statement, Allica said the deal, involving about 2,000 borrowers, will help it help it reach profitability in the middle of next year, which is earlier than previously expected.

“We’re working closely with AIB to ensure a smooth and seamless transition for AIB customers who we look forward to providing with a secure and sustainable home,” said Mr Davies.

“This acquisition enables us to support and scale even more of Britain’s established SMEs and growth companies at a time when SMEs are looking for more tailored support from their bank.

“As we said at our recent trading update, we’re laser focused on growing our lending to multiple billions over the coming years as we seek to support the underserved and overlooked SMEs across the UK.”