Bank of Ireland warns of major pressure on funding and deposits from any new entrant
BANK of Ireland, the country's largest bank, has warned it could face significant pressure if a foreign bank, with a stronger credit rating, entered the Irish market.
The bank, which managed to attract private funds during 2011, has warned potential investors that a takeover of one of its Irish competitors could have an impact on its deposit base and funding.
"A foreign-owned bank with stronger credit ratings than the group could acquire one of the group's principal competitors in the Irish banking market,'' the bank said in its latest bond prospectus, filed just before Christmas.
"This could have an adverse impact on the group's funding profile if a significant number of depositors transferred their deposits from the group to the competitor due to the new owner's stronger credit ratings."
Irish banks, which have been raising their variable mortgage rates and their margins on a large number of products, could be put under pressure by a new entrant, the bank makes clear.
"In addition, the competitor could be in a position to lend to the group's customers at lower rates due to access to cheaper funding with a consequent adverse impact on the group's financial condition and prospects.''
Bank of Ireland is one of the few Irish banks which has been able to convince the markets its loan losses have peaked. As a result it has received private capital from a group of north American investors, including Wilbur Ross, although the State also retains a large stake.
The bank is currently trying to shrink its loan book from €114bn to €90bn, by selling off selected portfolios and individual units. This will leave the bank with a lower funding requirement and dependence on central banks like the ECB and the Bank of England.
In its latest prospectus the bank said the sovereign debt crisis in Europe is causing all banks difficulties.
"The concerns regarding European sovereign debt experienced since mid-2010 have resulted in renewed instability in financial markets, adversely impacting market sentiment, restricting access to wholesale funding markets for financial institutions across Europe.
"In Ireland's case this renewed instability has been exacerbated by, amongst other things, successive downgrading of the Irish sovereign credit rating since August 2010 and the corresponding downgrades for senior ratings of domestic financial institutions.''
The bank has customer deposits of €65bn, according to figures covering up to June 2011.
"Medium-term growth in the group's lending activities will depend, in part, on the availability of customer deposits on appropriate terms,'' the bank explained.