(Alliance News) - NatWest Group PLC confirmed Monday it has agreed to sell the majority of subsidiary Ulster Bank's commercial lending to AIB Group PLC.
As part of its planned exit from the Republic of Ireland, FTSE 100-listed NatWest agreed a non-binding memorandum of understanding with Dublin-headquartered Allied Irish Banks to offload an EUR4.2 billion Irish loan book.
NatWest agreed to sell EUR4.2 billion gross in performing commercial lending and associated undrawn exposures of about EUR2.8 billion to AIB.
AIB said it will pay EUR4.1 billion - 97.63% of par value - for the portfolio in cash, funded from existing resources.
AIB said the deal will be accretive to earnings in 2023. It noted, based on the current portfolio size and following full loan migration, customer loan net interest income will be about EUR100 million per annum from the loan book.
AIB expects the deal to hit its CET1 ratio by about 145 basis points.
"The group remains well-capitalised compared to its minimum regulatory requirements and in excess of its CET1 target of above 14%," AIB added.
The Irish bank ended the first quarter of 2021 with a CET1 ratio of 15.8%.
AIB Chief Executive Colin Hunt said: "AIB's landmark acquisition of Ulster Bank's EUR4.2 billion corporate and commercial loan book will further underpin the bank's ambitious growth plans and position us to support the business community and Ireland's economic recovery as we emerge from the pandemic.
"We continue to deliver on the strategy we announced last December to enhance and diversify our revenue streams and ensure AIB's long-term sustainability."
"We are focused on delivering the transformation agenda and progressing towards our target return on tangible equity of over 8%. As we set out in our first quarter trading update, we are confident in the outlook for the remainder of the year," Hunt added.
For its part, NatWest said it will recognise a "small gain on disposal" of the portfolio, based on its net carrying value as at December 31.
NatWest Chief Executive Alison Rose said: "In line with our strategy of a phased withdrawal from the Republic of Ireland, I am pleased that we have now reached agreement with AIB on the sale of the majority of Ulster Bank's performing commercial lending portfolio. Our priority remains to support our customers and colleagues through this period."
Back in February, NatWest confirmed talks with Permanent TSB Group Holdings PLC over the potential sale of other retail and small and medium enterprise assets.
In early May, NatWest completed the transfer of a major part of Northern Ireland business Ulster Bank Ltd to National Westminster Bank PLC.
In November 2020, the lender first announced the transfer, on the grounds that it would "help to simplify the governance processes of NatWest Group and reduce associated costs which supports NatWest Group's overall objectives."
Shares in NatWest were down 0.4% in London on Monday morning at 206.90 pence each. AIB was 2.2% lower at EUR190.20.
By Paul McGowan; paulmcgowan@alliancenews.com
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