Belgian bank increases loan provision over mortgage debt

BELGIAN BANK KBC has increased its provisions for its Irish loan book, amid concerns that rising unemployment may affect mortgage repayments by its customers.

In an unexpected update yesterday the bank said it will take a loan impairment charge of €263 million in the fourth quarter of 2010 – more than the total impairment charge taken in the first nine months of the year.

The impairment charge will have an effect on its fourth quarter results, due to be announced on February 10th.

The €263 million charge is well in excess of the total impairment provisions made in the three previous quarters.

Loan provisions related to the bank’s Irish loan book were €53 million in the third quarter, €28 million in quarter two and €142 million in the first three months of 2010.

KBC has an Irish loanbook worth €17.4 billion, the majority of which relates to residential mortgages.

According to the bank, there has been a further deterioration in market conditions since its last trading update, which was issued in November.

“Following the announcement of the €85 billion European Union and International Monetary Fund financial aid package for Ireland on 28 November 2010 and the consequent impact on the Irish economy, KBC Bank Ireland has reassessed its required provisioning levels for 2010” the bank said in a statement.

The bank said it is reassessing its mortgage portfolio, as it believes the “continuously high level of unemployment” may cause higher arrears and default ratios for mortgage loans to retail customers.

It is also increasing its provisions in respect of its commercial lending portfolio – mainly in property development and investment financing – because it believes the accelerated restructuring of the Irish banks will have a negative effect on asset valuation.

In its most recent trading update in November, the bank forecast that its Irish unit would remain profitable for the year, although it said at the time that some 9 per cent of its Irish loan book was more than three months in arrears.

The bank reiterated yesterday that KBC Bank Ireland – which has had a presence in Ireland for 30 years – remains “a sufficiently capitalised bank”.

KBC also announced that it has started an investigation into an isolated irregular incident in its British leasing business.

The cost of the irregularity is estimated to be up to €150 million, which will be booked as a one-off charge in its fourth-quarter figures.