Belgian bank KBC is "uneasy" about loans to property developers that Irish banks have transferred to the National Asset Management Agency because the so-called bad bank could start "dumping" the loans at distressed prices in the market.
Chief financial officer at KBC Luc Philips made the comments to analysts on a conference call following the publication of its third quarter results.
KBC, which had €2.15 billion worth of real-estate loans outstanding in Ireland as of September 30th, didn't transfer any loans to Nama.
While loan loss provisions at the group rose 28 per cent to €356 million from the second quarter, they were unchanged from a year earlier. Loans at least three months in arrears rose to 4 per cent of the amount outstanding from 3.7 per cent in the preceding quarter.
In Ireland, provisions for the period were €53 million. That compares to €28 million in the second quarter of the year and €142 million in the first three months of 2010.
KBC said some 9 per cent of its Irish loan book, worth €17.4 billion, is at least three months in arrears, up from 7.7 per cent in the preceding quarter. The majority of KBC loan book is made up of mortgages to owner occupiers.
If residential house prices fall a further 10 per cent, that will cost the bank a further €50 million in loan impairments. A rise of 1 per cent in the unemployment rate, currently at more than 13 per cent, will lead to a rise of €25 million in residential loan impairments, the bank said.
However, the Belgian bank forecasts its Irish unit will remain profitable this year, and said 76 per cent of its
outstanding portfolio remains low or medium risk.
The group reported third-quarter profit that beat analyst estimates after gains in trading income. Net income rose 3.2 per cent to €545 million. That beat the €501.5 million average estimate of six analysts surveyed by Bloomberg.
Profit for common stockholders, after accounting for interest on €7 billion of government rescue funds, fell 25 per cent to €1.17 a share.
KBC said it won't need to raise additional capital to meet Basel III requirements, forecasting an 8 per cent common equity ratio by the end of 2013. The Belgian bank has accumulated about €4.3 billion euros of surplus capital to repay state aid.
"The guidance on Basel III seems at first glance more reassuring than we had expected," Albert Ploegh, an analyst at ING Groep NV in Amsterdam, wrote in an investor note. "It is an important topic for KBC, especially given its already limited capital flexibility due to its obligation to repay state aid."
Trading income jumped 80 per cent to €264 million from the preceding quarter, and KBC earned €103 million from market activities, the most in a year. Underlying profit at its Belgian retail-banking unit slumped 19 per cent to €220 million.
KBC reiterated that the company is waiting for "optimal conditions" to start the planned initial public offering of a minority stake in its Czech banking unit CSOB.
Additional reporting: Bloomberg