Belgian bank buys full control of IIB, Irish Life Finance

The Belgian Bank KBC has moved to become a significant player in the Irish banking sector, the first to do so since the euro's introduction.

The bank, which held a majority stake in Irish Intercontinental Bank and Irish Life Finance for many years, has bought out the remaining shareholding in these businesses from Irish Life for £125 million (#159 million).

Before the deal, KBC owned 75 per cent of Irish Intercontinental Bank and 66.6 per cent of Irish Life Finance. Both are now wholly owned by the bank. It also operates KBC Finance Ireland, which is based at Dublin's International Financial Services Centre.

KBC, Europe's 16th largest bank and the second biggest in Belgium, is a major force in the European financial services market. It has a market capitalisation of #17.8 billion, making it substantially larger than the Republic's two main banks, AIB (#12 billion) and Bank of Ireland (#9.5 billion).

It is keen to expand its Irish interests and will be among the bidders for the State-owned ICC Bank when the Government puts it up for sale shortly. This acquisition would give KBC a substantial presence in the Irish small and medium-sized business market, in addition to its corporate and private banking, international project finance activities and mortgage interests. It now has total Irish assets worth £14 billion and employs 400 people.

Announcing the completion of the purchase from Irish Life yesterday, IIB group chief executive, Mr Ted Marah, said the bank was focused on developing in the Irish market.

"We have no plans to become a high street bank, but we are interested in ICC. It would get us up to scale in the small and medium-sized business market more quickly than we could develop it on our own," he said.

Meanwhile, Irish Life & Permanent said the proceeds of the sale would be added to group cash resources. It is also expected to bid for ICC.

Under the terms of the sale agreement, Irish Life has negotiated an exit mechanism in relation to its 23.1 per cent shareholding in K&H Bank in Hungary. Its interest will be transferred to KBC through an option arrangement at a minimum price of £27.9 million (#35.4 million). The price is subject to limited upward-only adjustment in certain circumstances including a flotation of K&H Bank and as a result of increases in the net asset value of the business. This option will exist for five years and no transfer can take place before May 2001.

KBC operates in 30 countries, employing 23,300 people at 2,700 branches. It first established a presence in the Republic through the purchase of a minority stake in IIB, which was then jointly owned by Irish life and a US bank.

IIB was incorporated in 1972 and has been controlled by KBC since 1978. It is an investment merchant bank which concentrates mainly on corporate lending. At the end of 1998 its loan portfolio stood at £1.4 billion. IIB inturn manages KBC's other Irish subsidiaries.

Irish Life Finance, set up in 1989, offers residential and commercial mortgages through a network of brokers. It also has operations in Northern Ireland and Britian. At the end of last year, it reported lending of more than £1 billion, and controls about 12 per cent of annual mortgage lending.

Irish Life Finance will increasingly be able to incorporate many of its parents mortgage products which are specifically tailored to a low interest rate environment and should be in a position to further heighten competition in the mortgage market.