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 this time it seems NatWest finally lost patience.
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 and customers don’t need to do anything for now.
The wind down of Ulster Bank will be gradual and could take several years.
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 but little is likely to happen between now and the end of the year.
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.
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 are rumours that Permanent TSB could take on Ulster Bank's savings accounts but nothing has been confirmed.
Unfortunately the closure of Ulster Bank could quicken the arrival of negative interest rates on customer deposits.
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.
I have a mortgage with Ulster Bank - how does this affect me?
If you're a mortgage or personal loan customer it's likely your loan will be sold on to a rival lender already operating in Ireland or perhaps a new brand lender.
For competition reasons, it’s unlikely that any of the larger players in the market like AIB and BOI will be able to compete for much of the business though.
AIB seems to be circling around some of the corporate loans, while PTSB seems to have an early interest in some of Ulster Bank’s mortgages.
Your repayment terms and interest rate will all remain the same and there is little for customers to do or worry about. Although this might be an opportune time for mortgage holders to see whether there is better value to be had by switching to a new lender of their own choosing.
Those with a tracker mortgage will still be able to keep it and if you're lucky enough to have one, you won't find any better value elsewhere.
There is also the possibility that Ulster Bank might continue to own your mortgage and personal loan 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.
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 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 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. 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 Card.
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?
There’s no need for you to panic or rush into making a decision.
However current account customers will eventually need to find a new bank to deal with as eventually your account will be closed and a cheque or bank draft issued for any money you may have remaining in it.
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. KBC, 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.
What could 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 need is for the third biggest player to exit the market and reduce competition even further.
Ulster Bank’s exit would be most keenly 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.