The Bank of Ireland is headquartered in Dublin, Ireland. It is one of the top four banks of Ireland.
Bank of Ireland sold its credit card business which includes Bank of Ireland UK, the AA, and Post office credit cards to Digital finance company Jaja Finance for around 530 million pounds. This acquisition will make Jaja finance as one of the major players in the UK Credit card market.
Jaja has bought the credit card business forming a consortium which includes US Investment houses KKR and Centerbridge Partners.
What was the reason for the Bank of Ireland to sell the credit card business?
When the Bank of Ireland published its yearly results in March, the Bank had set aside 27 million pounds provision for potential future loss. The Bank’s Group chief executive had said it has initiated due processes to sell its UK Credit card business.
Group chief executive Andrew Keating had informed the business analyst regarding the credit card sale. He had also said the sale would reduce the net interest margin (NIM) of the bank. The bank’s profit would considerably reduce because of the sale. This is because the credit card business brings in extra money as the credit card lending rate is higher than the normal credit rate.
But the sale would bring in extra cash inflow into the Bank and increase the much-needed capital for the group. For a credit card business, the Bank should hold extra capital as a reserve, which would be more than required for mortgage lending or any other secured lending business. So, selling the credit card business will free this additional reserve which would be helpful to increase its secured businesses.
The Bank’s executive said the bank likes to focus on its secured business like mortgage lending. The Bank likes to increase the loan book from its present size and double its profit in the coming years. There is intense competition between banks and private financial lenders in the mortgage business. The mortgage business offers more profit margins for the lenders and every lender wants a share in this business.
Bank of Ireland
Bank of Ireland wants to restructure its portfolio and reduce its business risk. It also wants to increase its capital to expand its business. Business Insurance is a highly lucrative business in Ireland, and also any commercial property should possess commercial property insurance in Ireland for its safety.
Insurance and lending go hand to hand in servicing its customers. When these two business entities tie up it naturally increases the business volume and the profit margin. Commercial property owners need loans to run their business. They are compelled to their properties against damages, this helps the bank and the Insurance companies to increase their business. Insurance companies offer business landlord insurance to landlords. As a mortgage lender, the banks have to hold over its customers and advise them to opt for particular business insurance. When Banks recommend its customers regarding the business insurance they will surely follow their advice.
Bank of Ireland will service commercial credit card business and will sell only its general credit card business. It has also informed that it will service the credit card business. It will do until the consortium takes over the business after completing the financial part of the deal.
The Bank of Ireland customers can use their credit cards as usual and the bank will look after the dealings till Jija finance takes over the business completely. Credit card business is a profitable business and bank of Ireland is selling the credit card business to increase its capital inflow and increase its other primary lending business.