KBC cuts Irish loan-loss provision forecast as profits rise

Belgian financial services group KBC has cut its forecast for loan-loss provisions in Ireland and announced a €39.5 million second-quarter net profit for its Irish arm.

KBC Bank Ireland, which has €14 billion of Irish loans still outstanding, slashed its full-year Irish loan-loss provisions to a range of zero to €40 million, from a previous guidance of between €50 million to €100 million.

The bank said first-half profits reached €73.7 million. Second-quarter profits totalled €39.5 million versus €18 million last year and up from a €34 million loss in the same three months in 2014.

Operating profit totalled €38.8 million before tax and impairment, up from €30.8 million in the second quarter of 2015.

Impaired loans fell 14 per cent over the year, falling from €7.1 billion to €6.1 billion.

Significant progress

The bank, which employs more than 1,000 in Ireland, said it had made “significant progress” in offering resolutions to 95 per cent of distressed customers.

KBC Bank Ireland said it added 16,200 new customer accounts during the second quarter on the back of switcher ad campaigns. This brings to 33,000 the total number of new accounts since the start of the year.

"What we've seen in the first half of the year is a confirmation that the hard work and conservative approach that we've taken since the financial crisis is now starting to yield results," said KBC Bank Ireland chief executive Wim Verbraeken.

“We are bringing on new customers onboard with very competitive offers and at the same time the distressed portfolios, whether it is on the corporate and SME side or retail mortgages, are now quite stable. We’ve hardly seen any adjustment to our provisions for credit losses and that is essentially driving a lot of the good results,” he added.

Mr Verbraeken said he was optimistic for KBC’s future in Ireland, despite the economic threat posed by Brexit.

“The mortgage market having digested the impact of the macroprudential rules introduced by the Central Bank that had led to an uptick in activity. It is obviously an important market for KBC to be in and one in which we intend to grow our market share,” he said.

Strategic review

KBC initiated a strategic review of its Irish business earlier in the year with the group saying it was ruling nothing out in relation to its future. Mr Verbraeken said the evaluation was continuing with the process likely to be concluded late this year or early in 2017. Refusing to comment on speculation regarding a possible merger with Permanent TSB, he also declined to say if a Central Bank-initiated review into lenders who offered tracker mortgages had revealed any issues.

Mr Verbraeken said the evaluation was ongoing and that the bank had not included any provisions for it in its latest results.

The group’s parent, meanwhile, posted a year-on-year rise in net profit in the second quarter as loan and deposit volumes grew in most of its core markets.

Net profit rose 8.3 per cent in the second quarter to €721 million, well above the fall to €603 million expected in a poll of analysts.

The group said it would pay an interim dividend of €1 in November as part of its policy to pay out at least half of its consolidated profits.