Bank of Ireland has to help its rivals – Dilosk and Finance Ireland – finance it in €1bn as the price of buying the KBC mortgage book.
The mortgage bang – split 50:50 between the two non-banks – is the only major appeal given to the Bank of Ireland by the Competition and Consumer Protection Commission (CCPC) as a condition of buying around €9 billion worth of mortgages and loans by KBC.
The CCPC waved off the deal on Tuesday after a so-called phase two inquiry after concluding that it “will not materially reduce competition in the Irish mortgage market”, subject to the terms agreed by the bank.
The competitive clearance removes the biggest potential stumbling block to the sale ahead of the bank’s annual general meeting on Thursday, although it’s still subject to ministerial approval.
As part of the agreement, Bank of Ireland also agreed to provide €1m in financing to companies involved in developing innovation in the mortgage market in Ireland.
KBC mortgage customers are entitled to the same fixed interest rate they received with KBC for the remainder of the fixed term of their mortgage and receive a 0.2 per cent rebate on mortgages if they hold a current account with KBC without one Bank account to have current account Ireland.
Bank of Ireland has also committed to offering KBC customers equivalent floating rate and fixed rate options on their first post-migration rollover.
The €1bn lending to Dilosk and Finance Ireland will help provide certainty as they head into a higher interest rate environment, according to Davy’s Diarmaid Sheridan.
It also gives security to other lenders of the two lenders in the still developing market. Dilosk and Finance Ireland fund their lending in the fixed income market by bundling and borrowing against mortgages. That should be more expensive than what the Savings Bank of Ireland uses to fund its lending.
“The €1 billion will ensure that there are more than three lenders in the mortgage market, something the CCPC would have been concerned about,” Mr Sheridan said.
The remedies imposed on Bank of Ireland point to an even easier outcome for smaller rival Permanent TSB in its takeover of Ulster Bank’s mortgage and personal loan book, he said.
Permanent TSB can also be directed to support alternative lenders, but to a lesser extent, he said.
Fergal McGrath, CEO and co-founder of Dilosk, said the agreement is a recognition by the CCPC of the “key role that non-bank lenders” are now playing in consumer finance.
The financing agreement to support alternative lenders misses the potential solution discussed earlier this year, which was to spin off part of KBC Ireland’s mortgage to a new or niche lender as a ‘seed’ for immediate scale up.
