Are days numbered for Bank of Ireland’s ‘subscale’ Northern Ireland unit?

In a day when Bank of Ireland revealed it was shedding more than 1,400 jobs in the coming years, booking up to €1.3 billion of loan loss provisions in 2020, writing off €136 million of early spend on its massive IT overhaul programme, and restructuring its UK business, chief executive Francesca McDonagh still wasn't done.

McDonagh also said on Wednesday that she had started a "strategic review" of the group's Northern Ireland unit, prompting immediate speculation that the bank will either dramatically reduce its footprint across 28 branches – or exit entirely – a market where it has been for 190 years.

In a region of 1.88 million people, Northern Ireland is probably overbanked with four main retail lenders, according to analysts.

Look no further than Bank of Ireland’s own Northern Ireland business where its £5 billion (€5.53 billion) of customer deposits and current accounts is double the size of its loan book. That’s an inefficient business model at the best of times. In an era of ultra-low interest rates (that’s only been extended by the Covid-19 economic crisis), it’s unsustainable.

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‘All options’

Bank of Ireland Northern Ireland has a “subscale” mid-single-digit percentage market share of the personal banking market in the region and a “high teens” slice of business banking, according to McDonagh, who insists that that “all options” are on the table.

“We are not entering into a review with a pre-formed judgment of what the outcome will be,” she said. “Though I think the option of us increasing capital allocation in Northern Ireland is less likely.”

That should put paid to any notion of Bank of Ireland seeking to lead consolidation in the market and take over Danske Bank's Northern Irish operation, which sticks out as an odd business for the Danish bank, with the second-largest branch network across the six counties, after Ulster Bank.

It will be the first quarter of next year before Bank of Ireland expects to announce a decision on the strategy for Northern Ireland. Speculation will fill the void in the meantime.