Watchdog clears AIB’s deal for Ulster loan book but highlights ‘concerns’

The State's competition watchdog has given the go ahead for AIB's purchase of a €4.2 billion book of commercial loans from Ulster Bank, which is leaving the Irish market. However, the Competition and Consumer Protection Commission (CCPC) also warned that the ongoing raft of consolidation in the banking sector could hurt customers

Ulster Bank's parent, NatWest, announced last February its withdrawal from the Irish banking market. It struck a deal last summer to sell its commercial book of loans to larger businesses with turnover of between €2 million and €250 million to AIB, sparking the CCPC investigation. AIB will become the main corporate lender in the State after the deal.

The CCPC is separately examining a deal to sell Ulster Bank's SME loans to businesses with a turnover of below €2 million to Permanent TSB. Belgian bank KBC is also leaving the market, further reducing the options available to borrowers. Retail customers of both banks are in the midst of being transferred to other institutions, with reports of huge delays.

The Central Bank this week urged other banks in Ireland to do more to facilitate the 900,000 Ulster and KBC customers who must now switch.

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The CCPC said it could not reverse any bank’s decision to exit the market. But it warned it had a duty to highlight its concern that a decrease in banking competition may “harm business customers and the wider Irish economy”.

“International evidence shows that higher concentration in banking services is likely to have a detrimental effect on competition, leading to poorer outcomes for business borrowers in terms of pricing, innovation and service,” the competition regulator said.

It said some of Ulster’s corporate customers that it spoke to during its investigation “substantiated” its fears by also indicating their concern at the bank’s exit.

Alternatives

The CCPC ultimately concluded that the deal would not lessen competition “in the context of” the alternatives, were Ulster to simply stop business lending or sell to another bank.

“The CCPC accepted the argument of the parties that Ulster Bank would cease to provide commercial loans to businesses in the State with turnover greater than €2 million, irrespective of whether or not the sale of its commercial loan portfolio to AIB proceeded,” said the competition regulator.

The regulator reiterated that it has “concerns regarding the competitive landscape of the Irish banking services market”.

Ulster Bank welcomed the CCPC’s decision and said is a “significant step forward” in its exit. About 280 of its staff will also transfer to AIB, which also welcomed the CCPC’s decision.

“Our next steps, starting today and over the coming weeks and months, will be to communicate with colleagues who will move to AIB . . . and to communicate to impacted customers who will migrate as part of this,” Ulster Bank said.