KBC warns Irish loan losses could get worse

BELGIAN BANK KBC has warned that Irish loan losses, particularly in its mortgage books, could increase in future months, as austerity measures, higher interest rates and continued downward pressure on asset values impact on borrowers.

KBC said it was setting aside €49 million for potential loan losses in its Irish subsidiary in the second quarter, in line with quarter one. However, the bank warned that “the current economy and domestic Irish marketplace has not improved as was envisaged” and as a result it was forecasting greater loan losses.

The admonitory note contrasted with the bank’s comments three months ago, when it noted that the economy was beginning to show signs of stabilisation.

KBC Ireland has a loan book of €16.9 billion, €12.9 billion of which is residential. Lending to small- and medium-sized (SME) businesses accounts for €2.2 billion, while €1.9 billion is outstanding to property investment and development activity.

Some 8.8 per cent of the company’s €9.7 billion owner-occupied mortgages were classified as non-performing, ie in arrears for 90 days or more, up from 7.7 per cent in Q1. The percentage of buy-to-let mortgages which were non-performing rose from 12.2 per cent to 13.7 per cent. Non-performing SME loans stood at 13.8 per cent.

Overall, KBC Group posted a net profit of €1.15 billion in the first half of 2011, almost double the corresponding figure for the same period last year.