The Competition and Consumer Protection Commission (CCPC) has given clearance for AIB's proposed purchase of Ulster Bank’s €4.2bn performing commercial loan book.

But it has also sounded a warning about the impact of Ulster Bank’s departure on wider competition in the banking marketplace.

The CCPC said its investigation had looked at whether the planned AIB and Ulster Bank deal would lead to a substantial lessening of competition, but concluded that it would not.

"Based on a review of the evidence available to it, the CCPC accepted the argument of the parties that Ulster Bank would cease to provide commercial loans to businesses in the State with turnover greater than €2 million, irrespective of whether or not the sale of its commercial loan portfolio to AIB proceeded," it said in a statement.

"The CCPC considered whether the Proposed Acquisition would cause a substantial lessening of competition, when compared to the alternative scenario of an exit of Ulster Bank by winding down its business lending or (in the case of commercial real estate loans) a sale of the loans to an alternative purchaser, and found that it would not."

But the commission also said that Ulster Bank’s exit from the market means that only two full service banks will remain in the State to serve the needs of businesses with turnover between €2 million to €250 million.

"International evidence shows that higher concentration in banking services is likely to have a detrimental effect on competition, leading to poorer outcomes for business borrowers in terms of pricing, innovation and service," the CCPC said.

"This is substantiated by some of the business customers contacted by the CCPC, who indicated that they had concerns with the exit of Ulster Bank from the State."

The CCPC said it cannot approve or reverse the decision of a company to leave the Irish market, but it does have a responsibility to highlight "competition issues which arise as a result of the exit and which are likely to harm business customers and the wider Irish economy."

It added that its concerns about the competitive banking landscape are highly relevant to the Department of Finance's ongoing review of the sector and it will continue to work with stakeholders to consider how the market can remain open and competitive.

AIB said it welcomed the CCPC approval and added that customers will be contacted in due course.

Ulster Bank also welcomed the decision which will see around 280 of its staff transfer to AIB as part of the agreement.

"This is a significant step forward in the progress of our withdrawal and our next steps, starting today and over the coming weeks and months, will be to communicate with colleagues who will move to AIB as part of the TUPE element and to communicate to impacted customers who will migrate as part of this," it said.

"Our website will be updated with information for customers in the coming days."