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Banking And Finance Law In Ireland: The Outlook For 2022 – Financial Services

2021 was a year of optimism for lawyers and other financial
professionals, with Covid-19 and Brexit somewhat ‘in the rear
view mirror’. There was a collective sense of enthusiasm as the
country returned to ‘business as usual’ and looked towards
the future.

That is not to say that 2021 was all plain sailing, as two of
Ireland’s most well-known banks, Ulster Bank Ireland DAC
(“Ulster”) and KBC Bank Ireland (“KBC”),
announced their exit from the Irish market further narrowing the
choice of lenders in this jurisdiction, leaving just Allied Irish
Banks, p.l.c. (“AIB”), Bank of Ireland (“BOI”),
Permanent TSB (“PTSB”) and Barclays Bank Ireland plc as
the main players.

Moreover, Russia’s surprise invasion of the Ukraine has cast
a long shadow over 2022 and with such resultant uncertainly, has
already had a substantial impact on global markets and life more

Given the current backdrop what follows is an overview of the
banking and finance market in Ireland and the outlook for 2022.

Irish Economic Outlook

In February 2021, Ulster announced that they were to cease all
operations after 186 years of business in Ireland. The following
July, PTSB announced that they had entered into a non-binding
agreement that would see them acquire €6.8 billion of
Ulster’s loans (mostly personal mortgages and small business
loans) and 25 of its branches. This agreement became binding in
December 2021 subject to final approval by Competition and Consumer
Protection Commission (“CPCC”) which is still awaited.
Approval of the Minister for Finance is also required for a merger
or acquisition involving a credit institution where the transaction
is necessary to maintain the stability of the financial system in
the state

In June 2021, AIB agreed to purchase €4.2 billion of
corporate and commercial loans from Ulster which received clearance
from the CPCC a year later in April 2022. In June 2022, AIB entered
into a binding agreement to purchase Ulster’s €6b tracker
mortgage portfolio which at the time of publication still awaits
CPCC clearance. Like the PTSB acquisition, the AIB acquisition
awaits ministerial approval with there being no indication of when
this will occur.

In April 2021, KBC signalled that they too were leaving the
Irish market after over 40 years on the island, with CarVal
Investors, acquiring its €1.1b non-performing loan book. On 22
October 2021, KBC entered into a legally binding agreement with BOI
to acquire its performing loan assets (including mortgages,
commercial and consumer loans), deposits and a small number of
non-performing mortgages to the tune of €8.8b. This binding
agreement received approval from the CPCC on 23 May 2022, though
remains subject to ministerial approval.

Ulster’s parent NatWest cited an inability to generate
sustainable long-term returns as the deciding factor for exiting
the Irish market while KBC referenced the challenging operational
context for European banks for its departure. These reasons have
not put off new entrants however, with the likes of Dutch neobank
‘Bunq’ launching its new Irish lending platform following
its acquisition of alternative lender Capitalfow in late 2021 with
plans to plans to advance over €1.2b in new lending to Irish
SMEs and property investors over the next three years.

Alternate Lenders

The Central Bank of Ireland’s (“CBI”) latest
Financial Stability Note shows that Ireland, in line with global
trends, is seeing non-bank lenders (“NBLs”) play an
increasing role in lending markets of all types. NBLs are spread
across all sectors and are filling gaps, creating niches and
offering a tempting alternative to the incumbents. NBLs operating
in Ireland include investment firms such as Bain, Earlsfort,
Garrison and Activate.

NBLs play a vital role in driving competition in the market as
they are not subject to the same stringent capital requirements of
retail banks and have a greater risk appetite driven by increasing
returns for their investors. It is a double edged sword as NBLs are
more exposed to global financial conditions given they do not have
a stable deposit base, but since the 2008 financial crisis, when
traditional lenders were unable or unwilling to lend, NBLs have
been very successful in increasing their market share in this

The Deloitte Alternative Lender Deal Tracker
Spring 2022
shows that despite concerns over the economic
recovery in Ireland post Covid-19 and the prospect of interest rate
hikes in 2022, 2021 was a stellar year for lending in all sectors
by NBLs, boosted by deployment of ‘dry powder’ amassed by
venture capital and private equity firms in 2020 and 2021. This
increase in NBL lending reflected the trend seen across the wider

Undoubtedly borrowers, both consumer and commercial, are
benefiting from this diversification and given the reduction in the
number of retail banks it will be interesting to see if alternative
lenders can further consolidate the gains they’ve been making
over the last number of years.

Russia Ukraine Conflict

Russia’s surprise invasion of Ukraine in February 2022 led
to a period of huge uncertainty as governments, professionals and
consumers distanced themselves from Russia, its regime and its
businesses. This uncertainty still persists as Russia continues to
show its complete disregard for the rule of law and eschews
international norms of expected behaviour.

Though Ireland’s exposure to the conflict is relatively
minor compared to some of our EU neighbours, we have seen direct
and tangible examples of the impact it has had in this
jurisdiction. Ireland’s primary exposures relate to aircraft
leasing and pharmaceutical products and imports of petroleum and

As aircraft leasing firms severed ties with Russia, the Kremlin
passed a law allowing foreign aircrafts to be added to the Russian
registers ignoring the European Parliament’s demand that these
aircraft be returned to lessors, leaving up to 513 aircraft worth
circa $10b leased from non-Russian lessors stranded in Russia.

The long-term effects of the war in Ukraine and its upward
pressure on the price of commodities, fuel and raw materials
generally will have unwelcomed trickle-down consequences that will
leave no sector of the economy unaffected. This negative sentiment
is borne out by the CBI who have signalled that there is
“considerable uncertainty” for the Irish economy going
forward as a result of the Ukrainian conflict.

An a result, the CBI put on hold its plans to gradually
reinstate its counter-cyclical capital buffer (“CCyB”)
which was reduced to 0% in March 2020 to counteract the effects of
the Covid-19 pandemic. The CCyB aims to promote the sustainable
provision of credit by increasing capital requirements of banks in
the upward phase of a given cycle and decreasing them during a
downturn and is a key tool used by the CBI to address risk in the
Irish market.

Nevertheless, in June 2022, the CBI announced the gradual
reintroduction of the CCyB to 0.5% with a plan to move to 1.5% over
the following 12 months signalling the CBI’s view of an
improving economy but with the consequence that this will eat into
bank profits with the potential knock on effect of reducing the
amount which banks are willing to lend.


The largest state-backed loan guarantee scheme in the history of
the Irish state, the Covid-19 Credit Guarantee Scheme (the
“Scheme”), which offers an 80% guarantee to facilitate up
to €2 billion in lending to participating small and medium
sized enterprises will finally conclude on 30 June 2022, having
been extended on multiple occasions since its inception in
September 2020 .

To the end of April 2022, three retails banks, six non-bank
lenders and 19 credit unions made 9,274 loans totalling
€636,305,657 to SMEs and have been responsible for maintaining
75,123 Irish jobs in the process. Though this represents less than
half of the Scheme’s €2b limit, figures show that the
Scheme and other similar supports have had the desired effect of
keeping business failure rates to a record low not seen since
2005/2006. By way of example, there were 401 corporate insolvencies
in 2021, a decrease of over 30% from 2020.

However, as the Scheme and other pandemic related supports such
as the Revenue debt warehousing scheme (“Warehousing
Scheme”) are phased out, the expectation is that there will be
a wave of corporate insolvencies in the Irish market. Approximately
€3b is tied up in the Warehousing Scheme which will become
payable from 1 January 2023, subject to any individual arrangements
that Revenue reach with participants. This coupled with the planned
ECB interest rate hikes and the rising energy costs faced by
business as a result of the Russia/Ukraine conflict could see 2022
reversing the trend and breaking new records for all the wrong
reasons. Indeed the number of business failures in Q1 2022 is some
19% higher than the same period in 2021.


Britain’s losses continue to be Ireland’s gains as the
country moves forward and looks to consolidate gains achieved in
the post-Brexit shake up. A recent report published by the Baking
and Payments Federation of Ireland in conjunction with the
Federation of International Banks Ireland (“FIBI”) has
shown that large international banks operating in Ireland including
AIB, BOI, Barclays, Bank of America, Citibank and others have
boosted their balance sheets by as much as €200b since the
Brexit referendum, second only to Germany in terms of the value of
assets that were moved from UK to EU banks post-Brexit.

This increase has led to Ireland being the eight largest
international banking sector in the EU and the 17th
largest worldwide in 2020, up from ninth and 19th in the
previous year, with Ireland ranking as the fifth largest exporter
of financial services in Europe and the eighth largest

The FIBI report suggests that this growth can be attributed in
part to major growth of significant financial institutions (those
supervised directly by the ECB) that use Ireland as their base to
service the EU and global financial markets.

Sustainable Finance

As 2021 drew to a close, sustainable finance was high on the
agenda at the 26th UN Climate Change Conference of the
Parties (COP26) being touted as a crucial and necessary part of the
global strategy to counteract climate change. In the weeks before
the conference, Sustainable Finance Ireland (“SFI”), a
public-private partnership, published its National Sustainable
Finance Roadmap (“Roadmap”) and set out its plans to make
Ireland a leading sustainable finance centre by 2025. The Maples
Group was part of the oversight committee for the development of
the Roadmap.

With nearly €160b sustainable-related assets managed or
listed in Ireland, Ireland already has strong green sustainable
credentials but the Roadmap sets out a plan to build on this
reputation. Key to this is the establishment of an international
sustainable finance centre of excellence in partnership with which
is among 18 actions contained in the Roadmap.

In tandem with the development of the Roadmap, Ireland’s
finance industry has been getting to grips with the implementation
of the EU’s Sustainable Finance Action Plan (the “Action
Plan”), which includes the EU Regulation on the Establishment of a Framework to Facilitate
Sustainable Investment
(more commonly known as the Taxonomy
Regulation (“TR”)) and the Sustainable Finance Disclosures Regulation
(“SDFR”), both adopted in June 2020.

The TR sets out an EU-wide classification system and provides a
common method for investors to identify environmentally sustainable
economic activities and encourage private investment in those
activities. The SFDR requires financial market participants to
publish information on how, and to what extent, their activities
align with those considered environmentally sustainable in the TR,
with a core objective to mitigate ‘greenwashing’.

In order for an economic activity to qualify as environmentally
sustainable, it has to substantively contribute to at least one of
the six environmental objectives set out in the TR. The majority of
the Level 1 measures under SFDR have applied from 10 March 2021 and
the first two of the objectives under the TR, “climate change
mitigation” and “climate change adaptation” have
applied since January 2022. The remaining four objectives under the
TR and the implementation of the Level 2 measures under SDFR will
apply from 1 January 2023

The continuing rise in green bonds was another feature of 2021
with, AIB, BOI and the Irish Electricity Supply Board
(“ESB”) making green bond announcements. The ESB launched
its second green bond offering of €500m to raise funds for
green energy projects including renewable energy generation and
green infrastructure. AIB and BOI both launched their green bond
frameworks following on from inaugural €1b and €750m bond
issuances in 2020 and 2021 respectively. AIB has gone on to raise a
further € 750m in its second green bond issuance in 2021 and
€1b from its first social bond in 2022.

It’s not only corporates who are following this trend. Since
its launch in 2018, the National Treasury Management Agency has
raised €6b through its Irish sovereign green bond with all
issuances oversubscribed highlighting the demand in the financial
market for green bonds.

Furthermore Euronext Dublin has become a leading stock exchange
for green bonds and a centre of excellence for debt listings with
420 ESG bonds listed from 150 issuers globally, including
government-backed entities, financial institutions and

Given the EUs strong leadership role in the continuing
development and promotion of sustainable finance the future is
bright for Ireland’s finance sector as we are undoubtedly well
positioned to help businesses and customer’s transition to a
low carbon economy. When it comes to sustainable finance, Ireland
is practicing what it preaches to ensure it meets it climate
targets and that there can be no accusations of
‘greenwashing’ on the Emerald Isle.

Funds Financing

The Irish funds industry has proven very adept at managing the
shift toward sustainable finance and has been a key driver in
promoting the sustainable finance agenda in Ireland. Figures from
an Irish Funds survey of its members showed that, as of August
2021, approximately 17% of all Irish domiciled funds could be
classified as either Light Green, i.e. within scope of Article 8 of
SDFR and promoting environmental or social characteristics or Dark
Green, within scope of Article 9 of SDFR that is, funds with a
sustainable investment objective.

In last years ‘Focus On’ piece we discussed the
introduction of the Investment Limited Partnership (Amendment) Act,
2020 (the “2020 Act”) which aligned the Irish investment
limited partnership (“ILP”) more closely with the
well-established limited partnership structures in other
international funds domiciles such as the Cayman Islands and

As we predicted, the numbers of new ILPs did not explode
overnight and to date the total number of ILPs registered in
Ireland to date is 18. Though not a seismic shift, this nonetheless
represents a 200% increase on the pre-2020 Act numbers.

This slow start was in part as a result of the spot-checking of
applications by the CBI, which raised uncertainties about certain
standard features of partnership funds and delayed the industry
promoting the new ILP structure while that uncertainty persisted.
Thankfully, these teething issues seem to have been ironed out.

Given Ireland’s experienced network of service providers,
law firms and other finance professionals, the ILP has the
potential to become the Irish fund vehicle of choice. The creation
of more ILPs in this jurisdiction will act as a proof of concept
for new entrants into the Irish funds market and will force global
fund managers to stop and consider Ireland and the ILP as a viable
alternative to the traditional fund vehicle options.

We are seeing this shift first hand at the Maples Group having
just recently launched our second ILP and with more ILPs already in
the pipeline for remainder of 2022.

Outlook for 2022 and Beyond

If the last three years have taught us anything, it’s that
nobody knows what is around the corner. How 2022 will unfold is
anybody’s guess, but all the signs look positive. What is
certain is that Ireland, and the Maples Group, are well placed to
capitalise as markets improve and adapt as necessary to whatever
lies ahead.

Originally published by Legal 500

The content of this article is intended to provide a general
guide to the subject matter. Specialist advice should be sought
about your specific circumstances.

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