Ulster Bank deposits drop €9.1bn in first nine months of 2021 amid ‘big switch’

Ulster Bank’s deposits fell by €9.1 billion in the first nine months of the year as customers were pushed to move savings and banking activities elsewhere as the UK-owned lender retreats from the Irish market.

However, total deposits still stood at €12.8 billion at the end of September, underscoring how much work lies ahead for customers of the bank to find a new home for their banking. The figures were contained in the latest quarter results of Ulster Bank’s parent, NatWest Group, which were published on Friday.

NatWest said that Ulster has now transferred four tranches of performing corporate and commercial loans to AIB and remains on track to complete the transfer of all €4.2 billion of such by the end of the year. AIB’s agreement to also buy about €6 billion of tracker mortgages from Ulster Bank is currently being assessed by the Competition and Consumer Protection Commission (CCPC) in Dublin.

NatWest previously estimated that it expects to incur about €900 million of withdrawal expenses and losses on loan sales relating to Ulster Bank’s withdrawal from the Irish market.

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The British bank said in August that expected about €350 million of the costs to be triggered in the third quarter as it reclassifies Ulster Bank mortgages to fair value. It reported on Friday that the reclassification triggered a €419 million loss.

Meanwhile, the wider NatWest Group missed estimates in the third quarter as it took bigger than expected charges for souring loans and warned of further gloom to come.

The UK’s biggest corporate lender reported operating profit before tax of £1.086 billion (€1.26 billion), below analyst estimates.

“Although we are not yet seeing signs of heightened financial distress, we are very conscious of the growing concerns of our customers and we are closely monitoring any changes to their finances or behaviors,” Alison Rose, chief executive, said in a statement.

Provisions for bad loans were £247 million, compared with consensus estimates of £163.4 million, marking a return to caution about borrowers’ prospects.

The bank’s net interest margin improved to 2.99 per cent, slightly better than expected. This measure of profit on loans minus payments on deposits is boosted by the rapid rise in interest rates, which the Bank of England hopes will counteract soaring inflation.

To reflect the economic gloom, NatWest tweaked its outlook for next year, saying that income will be higher but “we no longer expect costs to be broadly stable given increased inflationary pressures and impairments will increase.”

NatWest’s earnings follow rivals Lloyds Banking Group Plc and Barclays Plc, which said this week that borrowers were resilient so far as they face mounting economic pressures.

The cost of taking out a mortgage has soared over the past month, after then-chancellor Kwasi Kwarteng’s mini-budget roiled financial markets. Interest rates on mortgages have reached their highest since the 2008 financial crisis, adding more strain to borrowers who already face record property prices and double-digit inflation in daily living costs. Banks including NatWest have pulled thousands of mortgage products off the market as they adjust to spiraling rates.

NatWest said its mortgage business continued to grow in the third quarter, with overall net loans to customers increasing by £4.1 billion, or 2.2 per cent. The bank extended its early refinancing window from four to six months to let some customers refinance on better rates.

Once one of the world’s largest banks, NatWest has been transformed into a largely domestic retail lender. NatWest is still part-owned by the government after one of the costliest bailouts of the financial crisis over a decade ago. (Additional reporting by Bloomberg)