The decision by Ulster Bank owner NatWest to exit Ireland is a body blow for consumers and competition in the banking sector. Here we answer the most important questions.
What’s the background to the Ulster Bank closure?
Last September Ulster Bank left many people stunned when it revealed that its owner NatWest (formerly RBS) was reviewing its operations in Ireland with a closure of the bank actively being considered.
The bank had previously reviewed its operations here in 2014 with an exit from Ireland also on the cards back then. However, after much speculation, it reconfirmed its commitment to the Irish market.
However after stumbling into yet another loss last year due to the Covid pandemic, and with the bank still struggling to repay the £15 billion bailout it needed following the collapse of the Celtic Tiger property boom, its operations in Ireland once again came under the spotlight.
And in February it seems NatWest finally lost patience as it announced it was to exit the Republic of Ireland after over 160 years.
Ulster Bank's high cost base relative to other banks and its large (increasingly redundant) branch network didn't help things.
NatWest also has several billion in capital tied up in Ulster Bank which it can’t access as it needs to hold the money in reserve against its loans. All banks need to hold capital but Irish banks need to hold far more due to the perceived riskier nature of lending here. Closing Ulster Bank will allow NatWest to free up and access this capital and return it to shareholders.
Has something like this happened before?
Yes. Bank of Scotland/Hallifax, Danske Bank (formerly National Irish Bank) and Rabobank (which owned ACC) have all pulled out of the Irish market over the past decade or so. And, of course, Anglo Irish Bank and Irish Nationwide Building Society both collapsed.
However customers can take comfort from the fact that in all cases the wind downs were orderly.
Having said that, no player as big as Ulster Bank has ever left.
Ulster Bank has around 2,800 staff, 88 branches nationwide, about 15% of the Irish mortgage market and over €20 billion in deposits. Its exit is going to have huge ramifications.
What about Ulster Bank's operations in Northern Ireland?
Ulster Bank's business in the North is part of its UK operations and is unaffected by Ulster Bank's exit from the Republic.
What actions should I take now?
There is no need to panic.
NatWest is well capitalised, is well run, and the Central Bank will ensure customers are protected as much as possible.
Ulster Bank will communicate with customers in due course. However current account and savings customers in particular will likely need to find a new home for their business eventually.
Under law, customers need to be given a minimum of two months' notice before their accounts are closed. In reality, account holders will likely know much further in advance as to when their accounts are closing.
For now Ulster Bank is even still accepting new business, but this will largely cease from 29th October 2021.
I have a mortgage with Ulster Bank - how does this affect me?
Ulster Bank has agreed to sell its performing loans to Permanent TSB. In other words, mortgages where there aren't any serious repayment issues.
If you’re an Ulster Bank mortgage customer the most important thing to know is that your monthly repayment, interest rate and terms and conditions will all remain the same and there is little for you to do or worry about for now. Although this might be an opportune time for you to see whether there is better value to be had by switching to a new lender of your own choosing.
However this deal doesn't include tracker mortgages. Ulster Bank is still seeking a buyer for these loans and AIB has been mooted as a potential suitor.
Nevertheless, as with the above, no matter who ends up buying your tracker, you will still be able to keep it and if you're lucky enough to have one, you won't find any better value elsewhere!
Non-performing mortgages i.e. those in arrears, aren't included in this deal either.
There is still the small possibility that Ulster Bank might continue to own your tracker mortgage after it has closed up shop in Ireland but contract out the day-to-day servicing of your loan (statements, customer service, payment services, balance queries etc) to a specialist provider. This is what happened when the old Irish Nationwide (then Danske Bank) closed its retail operations in Ireland in 2013 and chose Pepper to manage the bulk of its loans (though it also outright sold some of its loans to Pepper too).
I have a mortgage approval in principle - what should I do?
Ulster Bank has said it will allow customers who have an approval in principle to draw down their mortgage. But this will obviously then transfer over to PTSB in due course.
I’m hearing talk of vulture funds - should I be worried?
Some so-called 'vulture funds' might also come in and buy some of the non-performing loans. These funds have a bad reputation in Ireland partly due to the tabloid media and politicians hyping things up and not understanding what they actually do.
A vulture fund is simply a company that primarily invests in debt considered to be very weak or in default. Your consumer rights as a mortgage holder with a vulture fund are no different to what they are with any other Irish bank or lender and you will have the same protections as everyone else under the Central Bank's Consumer Protection Code.
In fact, research has shown that customers who are in financial distress have a far better chance of having some of their debt written off with a vulture fund as opposed to a bank. So don't get worried if you see talk of loans being sold to one of these funds.
If you fall severely behind on your repayments, (think years and not months) a vulture fund might be quicker to try do something about it, but the vast majority of people have no need to worry.
However there will likely be huge political pressure on Ulster Bank and the government to not allow the sale of any loans to vulture funds so this may not even be an issue that arises.
I have a savings account with Ulster Bank - is my money safe?
Your money is absolutely safe.
The Deposit Guarantee Scheme guarantees your savings up to €100,000. If you have savings above this, you still don’t need to worry as Ulster Bank is well capitalised. It's exiting Ireland as a result of a strategic review - not because it's financially unstable (though it has been struggling with weak profitability).
The only thing you will have to worry about is where to put your savings.
As it’s now costing banks money to hold customer deposits, most banks are likely to run a mile from accepting any new savings, particularly as over €20 billion is on deposit with Ulster Bank, so it’ll be interesting to see how the sector handles all this money looking for a new home.
There have been discussions about Permanent TSB taking on Ulster Bank's savings accounts but nothing has been confirmed as of yet as they haven't formed part of the mortgage deal.
Unfortunately the closure of Ulster Bank could quicken the arrival of negative interest rates on customer deposits, which you can read more about here.
If you're a saver, this may be an opportune time for you to look at investment options instead, depending on your risk appetite. Paying down debt and topping up your pension are other good alternatives for your savings. See here for a list of alternative savings options.
I have a credit card with Ulster Bank - what do I need to do?
If you have a credit card with Ulster Bank, there is potential for your credit card to be sold to a new provider but nothing has been agreed as of yet. This is what happened when MBNA exited the Irish market almost a decade ago and sold its credit card book to what is now Avant Money.
In this instance card holders should have little to do or worry about. However you should ensure you’re up-to-speed on the terms and conditions of your new credit card provider. Things like the minimum repayment amount, interest rate, and any reward schemes could all be different with a new provider.
Your credit card number may also change, meaning any account or online store where you have the details saved will need to be updated.
There is of course the possibility that your account will simply close, meaning you'll have to find a new provider yourself, though this is more unlikely.
I have a current account, what should I do?
The deal agreed between Ulster Bank and Permanent TSB around mortgages doesn't include current accounts either.
However there is no need for current account customers to panic. Ulster Bank says it will proactively contact customers in due course, and as mentioned previously, it must give you at least two months' notice before your account is due to close.
Having said that, now might be a good time to start looking at your options.
The good news is that there are currently nine other current account providers in Ireland so there has never been more choice and opening a new account has never been easier. N26 and Revolut allow you to do it from the comfort of your home through their mobile apps while AIB and BOI have vastly streamlined their processes over the past few years too.
Think carefully about what it is you value in a current account. Do you simply want the one with the fewest fees, or are things like mobile payments, an app, access to a branch network and reward schemes also important? Do you need an overdraft?
There may also be some type of campaign among the existing providers for your business. This is what happened when Halifax exited the market in 2010 and when Dankse closed its retail operations in 2013 and PTSB tried to court their business.
There is a current account switching code of conduct in place from the Central Bank that all banks must follow to make switching accounts easier, which you could also use. While this usually means that switching is relatively straightforward and quick, it remains to be seen how it would hold up if tens of thousands of Ulster Bank customers all try to leave at the same time.
Or check out this video on our YouTube channel where we discuss some of the best accounts fight now.
What will happen to Ulster Bank's branches?
As part of the mortgage deal, 25 of Ulster Bank's 88 branches will transfer over to Permanent TSB. All remaining Ulster Bank branches will start closing gradually from mid 2022 onwards.
What will this mean for customers in the longer term?
Ulster Bank’s exit is a body blow for consumers and competition in the banking sector and will lead to huge upward pressure on interest rates and banking fees in the short to medium term at least.
Ireland is already under banked compared to other countries of our size so the last thing we needed was for the third biggest player to exit the market and reduce competition even further.
Ulster Bank’s exit will most keenly be felt in the SME loans sector where it provides the only real competition to BOI and AIB. However mortgage holders and personal current account and loan customers will also be impacted.