KBC Ireland plans dividend to parent after €1.4bn bailout

KBC Bank Ireland is preparing to start paying a dividend early next year to its Belgian parent which injected €1.4 billion into the business during the financial crisis, according to its chief executive.

Speaking to The Irish Times after the Dublin-based bank posted a €44.4 million net profit in the third quarter, Wim Verbraeken said it was too early to say how much it may return to Brussels given that it will depend on regulatory approval and the finalisation of plans for the company.

The comments come as KBC Group prepares to complete a strategic review of the Irish operation early next year. The preferred option is to turn the unit into a bank-insurance company, according to Mr Verbraeken. The main alternative is to grow KBC Bank Ireland organically, while the prospect of selling the business would only be pursued if the other two options failed.

For the preferred option, KBC would obviously need a partner or be able to buy or set up in insurance, he added.

The lender, originally set up as Irish Intercontinental Bank in 1973 and acquired by KBC five years later, accounted for about 10 per cent of the Irish mortgage market in the lead-up to the bursting of the State’s property bubble almost a decade ago.

Soured loans

Having set aside hundreds of millions of euro of provisions to absorb loan losses during the crisis, KBC Bank Ireland began to release some of these earlier this year as the economy continues to improve and its level of soured loans declines.

The business freed up €28 million of provisions in the third quarter, following on from a €1 million release in the previous three months. The company now expects to unlock between €10 million and €50 million of such reserves this year, marking a turnaround from its previous expectation that it would book up to €40 million of fresh provisions.

The Irish unit’s third-quarter net profit compares with €24.6 million for the same period last year.

While €6 billion, or almost 45 per cent, of KBC Bank Ireland’s €13.4 billion loan book was classified as impaired at the end of September, the level of troubled loans has fallen 13 per cent in the past year.

Impaired loan

Mr Verbraeken said the bank applied the most onerous definition in the Irish market of what qualifies as an impaired loan.

He said if a customer agreed, for example, to a five-year loan restructure with KBC it would typically remain in the impaired portfolio for a year after this has been completed and the borrower was back to paying interest and a “significant portion” of capital.

Meanwhile, Mr Verbraeken said the bank had “fully collaborated” with the Central Bank’s review of mortgage lenders where borrowers have been wrongly moved off European Central Bank tracker rates.

KBC made its most recent submission at the end of September. “We are now waiting for substantive engagement with the Central Bank on this,” he said.

The wider KBC Group reported €629 million net profit in the third quarter, compared with €600 million for the same period last year.