Ulster Bank exit would hit SMEs most, warns Central Bank

Central Bank deputy governor Ed Sibley said the potential exit of Ulster Bank from the Republic would be felt most in the market for lending to small- to medium-sized enterprises (SMEs), as it would effectively reduce competition to two banks.

“Were Ulster to decide to leave, that would be the area that is most concerning,” Mr Sibley said in response to questions at the Oireachtas finance committee on Tuesday, noting that the current trend for competition in SME lending “is downwards” even as the mortgage market has seen new entrants in recent years.

Competition

Mr Sibley said overall competition in retail banking in the State is “somewhat concentrated” by European standards.

Central Bank and Ulster Bank executives declined to attend a hearing by the committee last week into the future of Ulster Bank, which heard Financial Services Union (FSU) officials claim the bank’s UK owner, NatWest, was using the coronavirus crisis to carry out a review that is known to be actively looking at winding the bank down.

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Ulster Bank is estimated to have a 20 per cent share of the Irish SME lending market and about 15 per cent of the mortgage market. AIB and Bank of Ireland are the main small business lenders in the State. While Permanent TSB’s new chief executive, Eamonn Crowley, has stated that he plans to grow the bank’s SME loan book, it is off a very low base.

Although Mr Sibley declined to discuss the Central Bank’s engagement with NatWest and Ulster Bank in relation to the review for confidentiality reasons, he said it is important that any regulated firm leaving the Irish market does so “in an orderly fashion”.

“Whenever there is a significant business change for a large institution, we would engage extensively with that firm about the approach they are taking to that change,” he said, adding that areas of focus include how risks are managed and that firms stick to consumer protection rules.

Support

The Irish Times reported in September that NatWest, formerly known as Royal Bank of Scotland (RBS), is actively considering winding down Ulster Bank in the Republic.

NatWest said at the time that the Covid-19 pandemic has added to challenges facing the bank, which has been dogged for years by high costs and low profitability in an era of ultra-low central bank interest rates and muted loan growth. The strategic review is also looking into alternative options, including a potential merger between Ulster Bank and another lender.

Meanwhile, Mr Sibley said Irish lenders entered into the Covid-19 crisis this year with “substantial buffers of loss-absorbing capital, and considerably more robust business models, less risky loan books and better operational resilience than compared with the situation before the global financial crisis”.

He said this has helped the sector “to continue to support their customers and the real economy through the pandemic”.