AIB will generate around €100m a year in income from its purchase of Ulster Bank’s commercial loan book which will cost it €30m a year to manage, the bank said.
The State-owned bank, Ireland’s largest, has signed a binding agreement to buy €4.2bn of loans made to larger SMEs and corporate borrowers for €4.1bn, 97.6pc of par book value, as the deal announced in February nears completion.
The deal does not include bad loans. It is understood that a rough cut-off point for loans that will be bought by AIB are those made to businesses with annual turnover of €2m or more, but there is no hard and fast rule.
Given the size of business involved, each of the borrowers already has a dedicated relationship manager in Ulster Bank, and the lender is writing this week to all customers who may be impacted by the announcement.
AIB and Ulster Bank declined to outline a breakdown by sector of the loans being sold, including how many relate to farms, retail and hospitality or to construction and development.
The deal includes a further €2.8bn of undrawn exposures – loans that have been sanctioned but not drawn down, including so-called revolving credit facilities which work like overdrafts for business customers.
Talks on Ulster Bank’s sale of its retail bank assets, including its loans made to smaller SMEs, with Permanent TSB are continuing.
The exact size of the loan book being sold to AIB and the final amount payable will depend on movements in the portfolio up to completion of the deal.
The transaction remains subject to regulatory approvals, after which AIB intends to migrate the loan book on a phased basis over a period of 12-18 months.
Approximately 280 employees who are directly involved in the servicing of the loan book will transfer to AIB.
The deal is expected to be accretive to AIB earnings in 2023.
Ulster Bank had total income last year of €574m, including interest and fees.
The bank said it remains well-capitalised compared to its minimum regulatory requirements.
AIB chief executive Colin Hunt said the “landmark acquisition of Ulster Bank’s €4.2bn corporate and commercial loan book will further underpin the bank’s ambitious growth plans and position us to support the business community and Ireland’s economic recovery as we emerge from the pandemic”.
“We continue to deliver on the strategy we announced last December to enhance and diversify our revenue streams and ensure AIB’s long-term sustainability,” he added.
Ulster Bank said there would be no immediate change for customers and that its commercial banking relationship managers will continue to actively engage with business customers throughout the process.
Its CEO Jane Howard said she was confident her own bank and AIB would deliver “a good solution for our performing commercial loan book customers”.
She said talks with PTSB and those with “strategic banking counterparties” on the bank’s withdrawal from the State are continuing.
As these deals are being struck, Bank of Ireland is in talks to buy KBC assets.
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