NEWS THAT KBC is to leave the Irish market is a hammer blow for its customers and staff, and another exit, following that announced by Ulster Bank, that leaves the future of the Irish banking sector uncertain.
The Irish retail banking sector is highly concentrated by international standards, contributing in part to the fact we suffer from the second-highest mortgage interest rates in the EU and more than twice the average.
In December last year, I received correspondence from the Deputy Governor of the Central Bank in which he made clear that:
“The exit of one entity from such a system, all other things equal, could contribute to upward pressure to lending interest rates and potentially lead to weaker credit availability.”
Since then, Ulster Bank announced its withdrawal from the Irish market in February followed by KBC Bank Ireland today.
This risks a virtual duopoly in lending between AIB and Bank of Ireland, with competition eroded, consumer choice reduced, and the risk of even higher interest rates. Last year, KBC accounted for 12.6% of all new mortgage lending, holding 9% of total mortgages.
Today KBC announced that it had entered a Memorandum of Understanding with Bank of Ireland for the purchase of its performing loan book, worth €8.9 billion, with its non-performing loan book to be sold elsewhere (most probably, to vulture funds).
This is a dramatic turn in events, with big consequences.
Only two months ago, its CEO Peter Roebben said there was no question of KBC leaving the Irish market, recommitting to its presence here.
That is why I said this morning on RTÉ Radio One that I suspected today’s announcement was the result of an approach from Bank of Ireland rather than a KBC initiative.
That suspicion was later confirmed, with Bank of Ireland first approaching KBC in February with talks intensifying in recent weeks.
Given the exit of KBC risks reduced competition and credit availability for consumers, with uncertainty for staff and customers, Bank of Ireland and the Minister for Finance as its largest shareholder should explain the benefits of this transaction.
Bank of Ireland should explain the impact of their actions on consumers
It is now clear that today’s announcement was not the result of any initiative taken by KBC to get out of the market.
Indeed, KBC had until today recommitted to maintaining its presence in the Irish banking sector.
Instead, this development was at the instigation of Bank of Ireland, an apparent move to poach a competitor and increase its market share.
The majority shareholder of Bank of Ireland is the Minister for Finance with a 14% equity stake in the bank after the taxpayer injected €4.7 billion during the financial crisis. So what purpose, on behalf of the Minister and taxpayer, does this acquisition serve?
The Programme for Government itself commits to encouraging greater competition in the lending market. Yet we now have a bank in which the Government is a shareholder actively moving to reduce competition.
If this results in reduced competition and access to credit, higher interest rates and an uncertain future for staff and customers, how can the Minister stand over such a transaction?
Today’s announcement requires clarity from Bank of Ireland but also from the Government, to state clearly what is impact will be.
After that, the Competition and Consumer Protection Commission will make its judgment on the impact of this transaction on customers and market competition.
Risks to Customers and Staff must be addressed
Today’s announcement will have come as a surprise to staff who learnt of the news with little consultation or warning.
They will have worked today worried about their future.
As the Financial Services Union made clear today, KBC and Bank of Ireland should now publish the Memorandum of Understanding and confirm that Transfer of Undertakings Regulations (TUPE) will apply to any sale of the KBC loan book.
Both banks should clarify that jobs will transfer with the asset and liabilities to be sold to Bank of Ireland.
It is unacceptable that nearly 1,400 employees are the last to find out about the future of their jobs. Clarity must also be provided for all KBC customers, particularly borrowers.
The MoU between the two banks only commits to the transfer of KBC’s performing loan book, with non-performing loans expected to be sold to vulture funds with no long-term interest in Ireland or borrowers.
Some these loans will have become non-performing as a result of a pandemic that is the fault of no borrower.
If this transaction is to proceed, it should involve the entire loan book of Bank of Ireland, providing as much certainty as possible to both customers and staff.
We need a Forum on the Future of Banking
It is fair to say that our banking sector is in a state of flux with recent events raising serious question marks once again over its future.
While today’s announcement was instigated by an offer from Bank of Ireland rather than desire from KBC to leave the market, the state of the sector is in a bad place.
Weak credit availability for small businesses and rip-off interest rates for consumers and mortgage-holders point to serious problems beneath the surface.
Recent attention has been drawn to the high levels of capital that banks are required to hold against their loans in the case of unexpected losses; nearly three times more than the EU average. This reduces the Return on Equity that banks can make in comparison to European counterparts and puts upward pressure on mortgage interest rates.
As a report published by the Department of Finance in May 2019 made clear, the level of capital banks are required to hold is largely caused by the legacy of the light-touch regulation and financial crisis that occurred under Fianna Fáil. Their legacy lives on in the banking sector.
This, together with other issues such as consumer protection and the long-term direction of the market requires immediate attention and a strategy.
That is why my party together with others such as the Financial Services Union have called for the establishment of a Future of Banking Forum that would include all stakeholders, to assess the current state of the sector, the challenges it faces, how to address, and the path forward that best serves our people and economy.
Pearse Doherty is a Donegal TD and Sinn Féin spokesperson on Finance.
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