Bank of Ireland has won EU regulatory approval for drastically shrinking its operations and wholesale funding activities, which was mandated by the European Commission after the Irish authorities took part in its recapitalisation.
The bank's exit from risky portfolios and the adoption of more prudent risk management practices will help restore its viability, the EU executive said in a statement.
"Bank of Ireland has embarked on an ambitious plan to downsize and refocus its activities to better serve the Irish economy," EU competition commissioner Joaquin Almunia said.
Under the restructuring plan, the bank will substantially deleverage its balance sheet to reduce its dependency on wholesale funding and will focus on balanced-risk lending in Ireland and Britain.
It will also offer certain services to new players or to small banks already active in Ireland in order to reduce the cost for competitors. The Government holds a 15 per cent stake in Bank of Ireland.
The European Commission said that Irish authorities had also pledged to open up the financial market to boost competition and implement measures allowing customers to switch banks more easily and better compare prices.
Bank of Ireland was ordered in March to raise an additional €4.2 billion in core Tier 1 capital to shield its balance sheet against future property-related losses following new stress tests.
Minister for Finance Michael Noonan welcomed the development describing it as “another step in the achievement of the Government’s strategy of returning the banking system to long-term viability and profitability.”
“The measures included in the revised plan will be implemented over various time-frames between now and December 31st, 2015,” he said.
Separately, the European Commission has approved Government plans to offer assistance to distressed credit unions.
Mr Noonan said in October that he planned to spend between €500 and €1 billion recapitalising the credit union sector. He said some credit unions were on the verge of failing and that rising arrears had led to the imposition of lending restrictions by the Central Bank.
The commission said the measure was limited in time and scope, ensured adequate burden sharing and contained safeguards to avoid undue distortions of competition.
“A resolution scheme must bring swift and efficient support when a failing entity needs to be resolved in order to safeguard financial stability and minimise economic losses,” Mr Almunia said.
“At the same time, moral hazard and distortions of competition need to be limited in the interest of European consumers and taxpayers. I am satisfied that the Irish scheme fulfils these conditions."
