Ireland's banking sector down to two big players as NatWest exits

DUBLIN: Ireland's finance minister said the banking landscape would be poorer as a result of NatWest's decision to exit, a move that leaves the country with just two major lenders as rivals begin to pick over the remains of Ulster Bank.

NatWest announced on Friday it was winding down its under-performing Ulster Bank business in the Irish Republic, where it is the third-largest lender with an estimated 15% share of the mortgage market, around 10% of the SME market and a 20 billion euro ($24.2 billion) loan book.

Allied Irish Banks (AIB) said that it has entered a non-binding agreement with NatWest to buy around 4 billion euros of corporate and commercial loans. Mortgage lender permanent tsb (PTSB) said it is in early talks to buy some retail and small- and medium-size enterprise assets, liabilities and operations.

The exit by a string of foreign banks a decade ago following Ireland's banking crash made AIB and Bank of Ireland the dominant players in a market former European Central Bank President Mario Draghi once described as a "quasi-monopoly".

"The Irish banking landscape will be poorer for the loss of Ulster Bank after all these years," Finance Minister Paschal Donohoe said in a statement, adding that the government needed to reflect on why such a large bank present in Ireland for over 160 years had departed.

Donohoe described the talks with rivals as a potentially important development but that there were "many, many bridges to cross" when asked if 75% state-owned PTSB would need more government funds for any transaction.

Davy Stockbrokers have said an acquisition by the smaller PTSB in particular - turbocharging plans to increase its tiny presence in the business lending market - could have a transformative impact on its earnings profile.

But Ireland's central bank has raised particular concerns on lending to small businesses.

Despite the country's booming pre-pandemic economy, banks have struggled to grow their loan books following years of repayments and redemptions exceeding improving new lending. Analysts say loan purchases would boost their profitability.

Shares in AIB, in which the government also retains a 71% share following the 2008 crash, were 4.3% higher by 1025 GMT, while PTSB were up 5.2%.

NatWest, which employs 2,800 people in Ireland and has 88 branches, has a preference to sell the loans to Irish banks, Chief Executive Alison Rose told reporters, but she declined to rule out sales to private equity firms.

Investment firms Cerberus and Lone Star have been reported to be interested in parts of the loan book. Opposition parties and unions in Ireland said sales to non-bank entities would further damage the sector.

The Finance Services Unions said the timing of the exit in the middle of a pandemic was "totally unacceptable" and that staff must have the option of transferring alongside the loan books.

AIB said its agreement included the transfer of employees directly involved in the day to day management of the loan book.