Shares in the State's three domestic banks jumped on Friday as KBC Bank Ireland said it was in talks to sell its performing loans and deposits to Bank of Ireland at a time when talks are underway for Ulster Bank to sell most of its loan book to Permanent TSB and AIB.
A carve-up of the two overseas-owned banks’ among the three remaining lenders will shrink competition in the market and provide room for them to grow at a time when loan demand remains muted.
Minister for Finance Paschal Donohoe said in an interview with RTÉ Radio's Morning Ireland programme on Friday that the Republic, as a small economy, faces "a challenge" in ensuring there is a diverse mix of lenders in the market. However, he said that the remaining banks are "well capable" of providing competition alongside non-bank lenders and some overseas lenders that are offering niche services in the State.
Shares in Bank of Ireland were up 6.5 per cent at 8.40am, while AIB rose 3.3 per cent and Permanent TSB gained 4.2 per cent.
KBC Bank Ireland said on Friday that it has entered into a memorandum of understanding (MoU) with Bank of Ireland, “expressing the parties’ intention to explore a route that could potentially lead to a transaction whereby Bank of Ireland commits to acquire substantially all of KBC Bank Ireland’s performing loan assets and liabilities.”
KBC Bank Ireland, a unit of Brussels-based KBD Group, has €8.9 billion of performing loans and €1.4 billion of impaired loans, mainly mortgages, according to group figures for the end of last year. It currently has a share of about 12.6 per cent of the Irish mortgage market and about 1,400 employees.
Goodbody Stockbrokers analyst Eamonn Hughes said that a deal with Bank of Ireland would boost the lender's earnings and would be unlikely to require the raising of additional capital from shareholders.
“From a market perspective, we are seeing more structural change in Ireland. From a valuation perspective, for BOI, the deal adds circa 18 per cent to earnings,” he said, noting that this is based on an initial “back of an envelope” assessment.
The transaction remains subject to customary due diligence, further negotiation and agreement of final terms and binding documentation, as well as obtaining all appropriate internal and external regulatory approvals.
Ulster Bank's parent, NatWest Group, said on February 19th that it is in talks to sell €4 billion of of the Irish unit's commercial and other business loans to AIB, with Permanent TSB negotiating to acquire a substantial part of the remaining €16 billion loanbook. NatWest said that Ulster's withdrawal from the Republic will take a number of years.