Earlier this week, reports emerged that NatWest will phase out Ulster Bank in the Republic of Ireland after more than 160 years on the market.
An official decision will be made tonight, with a formal announcement expected early on Friday.
With more than € 20.5 billion in their loan portfolio, Ulster Bank’s exit from the Irish market will be significant.
However, it is worth mentioning that nothing has been officially announced yet and if Ulster Bank were to withdraw from the Irish banking sector it would be done gradually over a number of years.
NatWest is also well capitalized, while the Central Bank will also ensure that customers are protected as much as possible.
Therefore, no one needs to panic or move accounts right away.
However, if Ulster Bank pulls out, it should have a significant impact on Irish finances, regardless of whether they are an Ulster Bank client or not.
This is what everyone should know;
The problem that caused Ulster Bank’s possible withdrawal
In 2014, NatWest previously reviewed its operations in Ireland, but decided to stay.
However, after Ulster Bank suffered another loss from the Covid pandemic last year, coupled with the bank’s continuing struggle to repay the £ 15 billion bailout needed after the Celtic Tiger’s collapse, their activities in Ireland are once again in the spotlight.
Earlier this monthThe Financial Services Union described a meeting with the CEO of Ulster Bank as “difficult and deeply troubling”. They also called on the Secretary of the Treasury and the Central Bank to “make urgent statements on the situation”.
Ulster Bank has 1.1 million customers, 2,800 employees and 88 branches here.
Potential job losses and their future in Northern Ireland
In the Republic of Ireland, Ulster Bank has 2,800 employees.
NatWest is currently reported to be committed to maintaining Ulster Bank’s presence in Northern Ireland.
What Ulster Bank Said
The chief executive of Ulster Bank has told staff that no decision has yet been taken on the future of the bank in the Republic.
NatWest will report its annual results for 2020 tomorrow morning and is expected to provide an update on its strategic review of Ulster Bank at that point.
What the government said
During Thursday’s Leaders’ Questions round, Pearse Doherty raised the issue of Ulster Bank’s possible withdrawal from the Irish market.
Sinn Fèin’s TD expressed concern that mortgages could be taken out by vulture funds, saying he wants the government to work with Ireland’s other major banking companies and the permanent TSB to create a “third power”.
This would prevent a potential duopoly in the banking sector, which would be unhealthy for the financial interests of Irish consumers.
Tànaiste Leo Varadkar said Ulster Bank’s savings and deposits are fully protected.
Treasury Secretary Pascal Donohoe has said mortgage terms will remain unchanged – he has been in contact with NatWest and RBS about minimizing the potential disruption and loss of staff.
Minister Donohue added that the government also shares this desire to create a ‘third power’ in the Irish market should Ulster Bank withdraw.
In an earlier address to the Oireachtas Budgetary Oversight Committee, Mr Donohue said: “Ulster Bank is a very important part of the Irish banking sector and their sudden withdrawal and the impact on our economy, employment and credit are very serious. them and I’ve made those items directly to NatWest. “
What the industry has said
The Financial Services Union (FSU) has said: “This is a very stressful time for staff and customers. It simply is not good enough for staff to learn through the media that NatWest is winding down Ulster Bank’s operations in the Republic of Ireland. “
They added that if Ulster Bank is to exit the Irish market, any solution must include maximum customer protection, employee jobs and the branch structure.
Ulster Bank current accounts
Financial comparison site Bonkers.ie said that “there is little to no possibility of your (Ulster Bank) account being transferred or sold to another bank.”
It added that “there is a Central Bank code of conduct for checking account switching that all banks must follow to make switching accounts easier.”
However, customers with checking accounts will eventually have to find a new bank to deal with.
If you are an account holder at Ulster Bank who is in debt due to an overdraft, you must also agree on how to repay it before the account is closed.
You should also make sure that your new provider is happy to give you an overdraft as well.
Mortgages at Ulster Bank
Ulster Bank owns approximately 15% of the Irish mortgage market, nearly 20% of the small and medium-sized businesses market and a loan portfolio of approximately € 20 billion.
While it’s hugely inconvenient and a blow to those who could lose their jobs, if Ulster Bank closes your savings should be perfectly safe and mortgages will be handled on the same terms.
Redemption terms and interest rates all remain the same and there is little for customers to worry about.
It is likely that your loan will be resold to a rival lender already operating in Ireland or perhaps a new brand borrower.
However, for competitive reasons, it is unlikely that any of the larger players in the Irish banking sector – such as AIB and BOI – will be able to compete for the company.
However, it has been reported that Ulster Bank mortgagees are already looking into options to switch to another lender, mortgage brokers have said.
In a statement, MijnHypotheken.nl have said they have “seen unprecedented demand from Ulster Bank customers looking to switch”.
Those with a tracker mortgage should still be able to keep it, but some mortgagees can also take advantage of it by switching banks and seeing if there is value to be gained by switching to a new lender of their choice.
As said by Bonkers.ie: “It is also possible that Ulster Bank still owns your mortgage and personal loan after closing its shop in Ireland, but outsources the day-to-day maintenance of your loan (statements, customer service, payment services, balance inquiries, etc.) to a specialized supplier. “
This is what happened when the old Irish Nationwide (then Danske Bank) closed its retail operations in Ireland in 2013.
There is also the possibility of more vulture funds entering the Irish market if Ulster Bank leaves.
Loans and savings accounts
In a statement released late last night, the Irish Farmers Association (IFA) urged the government and Ulster Bank not to sell its loans to a vulture fund.
An estimated 10,000 farmers have loans from Ulster Bank, and IFA president Tim Cullinan urged the bank not to leave them “ completely high and dry. ”
“Ulster Bank must make a commitment not to sell its loan portfolio to a vulture fund that would leave these farmers completely empty and dry.
“The government must step in and prevent this from happening,” said Mr Cullinan.
Ulster Bank savings accounts
In a statement, Bonkers.ie said that in the event that Ulster Bank closes, those with savings account should look elsewhere and the account will be closed with a check or bank draft issued for the amount you have in savings.
However, given the current financial situation, it now costs banks money to hold customer deposits.
Therefore, banks may be reluctant to accept large new savings, so while this is very unlikely, a situation of negative interest rates on customer deposits could arise.
Negative interest rates occur when borrowers receive interest instead of paying interest to lenders.
However, it is likely that if banks want to apply charges to a wider customer base, it will be on those accounts that have larger amounts deposited, namely six digits.
The possible impact on customers of other banks
As stated by the Irish Times, “because of the impact Covid had on the current financial environment, Irish lenders hold excess customer deposits and are charged negative rates by the European Central Bank on excess money deposited with it.
“The risk of the remaining banks in the market being inundated with unwanted deposits from Ulster Bank is likely to lead to negative interest rates being charged more widely, according to industry sources.”
Other risks if Ulster Bank leaves
Ged Nash, Labor’s spokesman for finance, public spending and reform, is also concerned about the impact a potential duopoly will have on the Irish banking sector.
He said: “Any exit would most likely also result in a growing dominance of the AIB / Bank of Ireland duopoly, meaning less competition and choice in an already expensive market for clients.
“The possibility that loans will simply be sold to the highest bidder is also bad news for customers.
Potential Ulster Bank Buyers
The Irish Times reports that a number of parties are interested in elements of Ulster Bank’s loan portfolio, including AIB, Permanent TSB and Dilosk.
A number of foreign investment firms are also interested in the portfolio.
What could happen?
If Ulster Bank leaves, it will be a blow to consumers and competition in the banking sector.
It could also lead to upward pressure on interest rates and bank charges at least in the short to medium term.
Reports suggest that Ulster Bank’s departure will be most felt in the SME lending industry as they are the only real competition for BOI and AIB.
But mortgagees and private customers with checking accounts and loans will also be affected.