KBC increases Irish loan provision

Belgian bank KBC increased its provisions for its Irish loan book it announced this morning.

In an unexpected update, the bank - which has an Irish loanbook worth €17.4 billion - is making an additional one-off provision of between €315 and 330 million to cover increased loan losses in its Irish loan book and an isolated case of irregularities at KBC Lease UK.

This will impact on fourth-quarter earnings which are due to be published on February 10th.

The bank said that since the release of its third-quarter results on  November 10th, 2010, it has seen a further deterioration in market conditions in Ireland and has reassessed its required provisioning levels for 2010 as a result of the €85 billion bailout for Ireland and its consequent impact on the Irish economy.

As a result fourth-quarter loan impairment provisions for Ireland will now amount to approximately €263 million. This compares to total loan provisions of €223 million over the first three quarters of 2010.

The bank believes that the accelerated restructuring of the Irish banks will have a negative effect on asset valuations in the industry, and as a result has increased provisions in respect of its commercial lending portfolio, mainly in real estate development and investment financing activities.

It is also increasing its provisions for the bank's residential mortgage portfolio, pointing out that "the continuously high level of unemployment may cause higher arrears and default ratios for mortgage loans to retail customers."

"KBC Bank Ireland remains a sufficiently capitalised bank" the bank said.

In a research note this morning, NCB points out that, while KBC Ireland has been one of the better performing banks in the Irish market over the downturn, the market appears to be punishing any of the International banks with exposure to Ireland at the moment, with the spotlight falling on aggregate provisioning levels built up to offset future write-downs.

As regards the irregularities in its KBC Lease UK business, KBC said that "a full and thorough review" is being conducted by both the relevant authorities and KBC's internal audit and compliance departments.