KBC Ireland to prepare for Central Bank tracker fine

KBC Bank Ireland will set aside money by the end of September to cover a likely Central Bank fine for the part it played in the industry-wide tracker mortgage scandal, making it the last of the State's five main banks to start making such provisions.

Chief executive Peter Roebben told The Irish Times on Thursday, as the Belgian-owned bank reported a 78 per cent decline in net profit in the first half, that it had not yet ringfenced money for a fine.

“We will be addressing that during this quarter,” he said, adding that he did now know when regulators will conclude an enforcement investigation into the bank.

KBC Bank Ireland, the smallest of the five retail banks operating in the Republic, saw its net profit fall to €24.9 million in the first half from €115.9 million a year earlier, which had been boosted as the lender freed up €80 million of bad loan provisions.

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The bank added €3.8 million in the first half to the €120 million of provisions it had booked in recent years to cover redress, compensation and other costs relating to the tracker debacle, where borrowers were denied their right to a cheap mortgage linked European Central Bank (ECB) rate going back to 2008. The figure will increase as money is set aside for a fine.

Bad loans

Meanwhile, KBC Bank Ireland’s non-performing loans ratio dropped to 18.9 per cent to 22.7 per cent in the second quarter as it wrote off millions of euro of bad loans. The write-offs were an accounting exercise as the bank had already set aside reserves to cover an expectation that customers would not repay the money.

KBC Bank Ireland sold €260 million of corporate loans to Bank of Ireland in the first half as it continued to restructure its business to focus on retail and very small businesses.

The company took a €12 million charge against these assets as part of the sale, which offset a release in the second quarter of provisions that had previously been taken against distressed loans.

“In the first half of this year, we added 38,000 new customer accounts and saw a 18 per cent year on year increase in new mortgage lending,” said chief executive Peter Roebben.

The total number of customers in KBC Bank Ireland currently stands at almost 300,000. New lending during the first half amounted to €495 million.

‘Tempering effect’

Still, Mr Roebben said the Irish mortgage market – where drawdowns grew 11 per cent to €4.2 billion in the first half, according to Banking & Payments Federation Ireland data – “is probably growing at half the rate that we were expecting a year ago”.

He said that this was a function of Central Bank mortgage caps “tempering” demand in Dublin, as well as house completions continuing to lag demand.

“I think it’s good that there is this tempering effect,” he said, adding that this means that banks were writing “very good quality” business.

KBC Bank Ireland estimates that 22,000 new homes will be built in the Republic in 2019, up from 18,000, but well off the consensus view among economists that there is currently demand for 35,000 new properties a year.

Mr Roebben said that his bank has seen no evidence yet of concerns over Brexit affecting mortgage demand.

“But uncertainty is growing,” he said, referring to concerns over the global growth outlook and geopolitical tension. “And I think some of that uncertainty, if it increases, probably will feed into people postponing house buying. It’s very difficult to predict where the mortgage market will be next year.”

Belgian financial services giant KBC Group reaffirmed its commitment to the Irish market two years ago, ending years of speculation over its future after a number of other overseas lenders, including Lloyds Banking Group, Dankse Bank and Rabobank Group, retreated from retail lending in the Republic in the wake of Europe’s biggest property market implosion.

The group has recouped – through special dividends – nearly a third of the €1.4 billion it injected into its Irish unit during the financial crisis to rescue the business as it grappled with mounting bad loan losses.