KBC's parent bank lost €6.5bn last year in corporate deposits

THE BELGIAN parent bank of KBC Bank Ireland (formerly IIB Bank), the State’s fifth-largest mortgage lender, said it lost €6.5 billion in corporate deposits last year as deposits were moved to rival Irish-owned banks protected by the Government guarantee scheme.

The Belgian bank’s chief financial officer, Herman Agneessens, also said the lender had classified 3 per cent of its Irish loan book as non-performing, meaning these loans had fallen into arrears.

KBC has an Irish loan book of €18.6 billion, including €13.7 billion of residential mortgages.

The bank said it was restricting lending in Ireland and some “high-risk” markets in eastern Europe.

KBC forecast that credit losses will increase to 1 per cent of loans outstanding this year.

Analyst Albert Ploegh at Dutch bank ING said: “The loan-loss ratio in Ireland was still modest at 29 basis points (0.29 per cent) but will likely rise in 2009.”

The share of non-performing loans – defined as loans for which interest payments or principal repayments are more than 90 days in arrears – amounted to 2.1 per cent in central and eastern Europe.

KBC, Belgium’s biggest bank and insurer by market value, posted a record loss on writedowns of collateralised debt obligations (CDO), a type of credit market investment, and forecast provisions for bad loans will more than double this year.

The bank’s fourth-quarter net loss of €2.63 billion, which compares with net income of €708 million a year earlier, includes €1.7 billion of CDO writedowns.

The Brussels-based bank wrote down completely the CDO portions that are first to take losses in the event of default to reduce the risk of future capital depletion.

Mounting losses on structured-credit investments led KBC to post its first annual loss and seek government support to shore up capital for a second time in three months in January. Provisions for bad loans rose to 0.46 per cent of the book, last year and may rise to 1 per cent this year.

KBC chief executive Andre Bergen said: “The non-performing loan level is at 1.8 per cent, so it remains well under control.” – (Additional reporting: Bloomberg)