EUROPEAN COMPETITION commissioner Joaquin Almunia has directed Bank of Ireland to open its customer database and back-office systems to competitors as a condition of his approval of its restructuring plan.
As Mr Almunia endorsed the bank’s plan to raise capital by selling its New Ireland Assurance and ICS Building Society subsidiaries, he called for specific measures to enhance competition among existing players and facilitate new market entrants.
The restructuring plan followed a €3.5 billion cash injection from the State which helped the bank boost its capital reserves after drastic losses on its property loans. The bank subsequently raised €2.9 billion in a rights issue last month.
“The good collaboration with the Irish authorities and the bank allowed us to achieve measures that will further open the banking market and facilitate entry and growth of market challenger,” Mr Almunia said.
“I am confident that this plan will ensure a stable future for Bank of Ireland and contribute to financial stability in Ireland without unduly distorting competition.”
With the sale of Bank of Ireland Asset Management already under way, approval of the plan means the bank will advance preparations to sell New Ireland and the ICS within the next two years.
Mr Almunia’s ruling also compels the bank to “significantly reduce” its presence in the British corporate lending market after two of its current loan portfolios are run down. The bank’s 17 per cent stake in Irish Credit Bureau, a credit referencing agency, will also be sold.
The bank is obliged under the Commission’s ruling to provide competitors the opportunity to contact its customers through BoI in order to advertise some of their products.
The Commission believes this would help reduce the costs for the bank’s competitors to acquire new customers and help them to expand their business. It would also facilitate entry of competitors.
In addition, Bank of Ireland will be obliged to provide competitors with access to back-up services such as clearing, payment services and its ATM network in return for “reasonable compensation”.
Small competitors do not establish such services on their own as a certain critical size is needed to make them cost-effective.
The Commission believes such measures will reduce costs for the bank’s competitors to develop their business in Ireland.
Minister for Finance Brian Lenihan said Mr Almunia’s decision “confirms the restoration of the long-term viability” of the bank, which is sending some €12.2 billion in property loans to the National Asset Management Agency (Nama) “bad bank”.
“This plan includes the repayment of the State aid received in due course. The plan also contains measures to limit distortions of competition, ensuring a competitive banking sector in Ireland,” Mr Lenihan said. The measures in the plan must be implemented by 2014, the Minister added.
“I am very grateful to Commissioner Almunia and his officials in the Commission for their work and commitment to bring the bank’s restructuring plan to finality and look forward to continued successful co-operation in advancing the restructuring plan process for the other institutions.”
Mr Almunia said the plan ensures Bank of Ireland’s viability by exiting risky portfolios and by implementing more prudent risk-management policies.
He added that the plan ensures a “fair burden-sharing” of past losses and ensures that the bank and its capital providers significantly contribute to the financing of its restructuring.
This was important to limit moral hazard, the danger that the bank would take excessive risk because it calculated that it would not have to pay for the consequences.
