Non-banks use just 20pc of Bank of Ireland’s €1bn mortgage competition funding

Fund was made available to Finance Ireland and Dilosk

KBC Bank is one of two banks leaving the Irish market. Photograph: Aidan Crawley/Bloomberg

Jon Ihle

February 02 2023 02:30 AM

Regulators’ key remedy to ensure competition in the mortgage market as foreign banks exit is having limited if any real impact as non-bank lenders rein in lending.

The Competition and Consumer Protection Commission (CCPC) required Bank of Ireland to make €1bn in new funding available to rival lenders Finance Ireland and Dilosk as a condition of its acquisition of KBC Ireland’s mortgage portfolio last May in order to protect consumers by maintaining competition in the market.

But less than 20pc of the money made available has been drawn from the bank since then, despite strong demand for lending.

Finance Ireland has drawn down €177.6m, while Dilosk has yet to tap the funding line at all, Bank of Ireland confirmed.

Mortgage broker sources said Dilosk, which trades under the ICS brand, had become less competitive for new lending in recent months as wholesale markets became more expensive. Finance Ireland withdrew its pioneering long-term fixed products in October due to high funding costs.

The effective absence of non-bank rivals to the big banks essentially means the CCPC’s aim of preserving customer choice as KBC and Ulster Bank withdraw from the market is floundering after it signed off on an unprecedented wave of consolidation.

“A key issue identified by the CCPC is the strength of competition that non-bank lenders will provide in the medium term, given expectations of a rising interest rate environment,” the competition regulator wrote in its announcement clearing the Bank of Ireland KBC deal.

“In light of these concerns, the CCPC considered it important that non-bank lenders operating in the Irish mortgage market be supported in their continued growth and role as emerging competitors in the sector.”

While Bank of Ireland is complying with its commitments – it submitted its first interim report to the CCPC in December confirming it purchased the €177.6m in mortgage-backed securities from Finance Ireland – it can’t force its competitors to take the money. As the funding is done at a market rate, the cost is still high for the non-banks. By contrast, Irish banks are largely funded by excess, and cheap, customer deposits.

The CCPC said there were no interim funding targets Bank of Ireland had to meet. A spokesperson said the commitments were designed to be flexible and to allow the non-banks to use the funding over several issuances of securities.

Bank of Ireland must submit funding reports every six months until June 2025 and certify its compliance on an annual basis until then.