Permanent TSB and AIB, in both of which the Government has majority stakes, are on track to say on Friday that they are in talks to buy parts of Ulster Bank's €20.5 billion loan book in the Republic as the UK-owned lender prepares to confirm that it is exiting the market, according to sources.
Talks between the two banks and NatWest, advised by Goldman Sachs, were continuing late on Thursday as the board of NatWest, Ulster Bank's parent, weighed a plan for an orderly wind down of the Irish unit.
It is understood that AIB, led by chief executive Colin Hunt, is looking in particular at Ulster Bank's corporate and medium-sized business book, potentially amounting to €4 billion of loans.
Permanent TSB (PTSB), where Eamonn Crowley is CEO, is circling Ulster Bank's smaller business loans and a portion of its mortgage book.
A deal with AIB, which shares most of the business banking market with Bank of Ireland, would face close scrutiny from competition authorities. For its part, PTSB may need additional capital, depending on the size of transaction.
Tánaiste Leo Varadkar told the Dáil on Thursday that the Government was exploring the establishment of a so-called third banking force, with Minister for Finance Paschal Donohoe "assessing all options" to protect customers and minimise job losses and to avoid compulsory redundancies wherever possible, he said.
Mr Varadkar told Sinn Féin finance spokesman Pearse Doherty that "a third force that would be able to compete with Bank of Ireland and with AIB, that is something I support, something the Government supports, and if it's possible to develop a solution on those lines".
This suggests that a material loan transaction with PTSB may be on the cards.
A spokesman for 71 per cent State-owned AIB and a spokesman for PTSB, in which taxpayers hold a 75 per cent interest, declined to comment. A spokeswoman for NatWest also declined to comment.
The Irish Times first reported last September that NatWest was actively considering winding down Ulster Bank in the Republic as it grapples with ongoing issues of low-profitability, Covid-19 and high levels of capital reserves that are trapped in the business.
It was reported on Wednesday evening that both AIB and PTSB and others, including non-bank lender Dilosk, were in talks to varying degrees on potentially acquiring parts of the Ulster Bank portfolio.
Overseas investment funds such as Cerberus and Lone Star, which have been among the most aggressive buyers of distressed loans in Ireland and Europe in recent years, are also known to be eying parts of the Ulster Bank loan book.
Mr Varadkar stressed that “in any scenario people’s deposits and savings are fully protected, and they can be transferred to another bank”. Ulster Bank has a deposit book of about €22 billion.
Ulster Bank employs about 2,800 people across the State with 88 branches and more than one million customers. It is responsible for 20 per cent of all SME lending and has a 15 per cent share of the mortgage market.
Mr Doherty said that the possibility of a debt investment fund like Cerberus acquiring Ulster Bank loans “would be an unacceptable outcome for homeowners/borrowers ... it must be avoided at all costs”.
He said the State remained a key player on the Irish banking sector and the pillar banks “could play a lead role”.
