KBC books €319m charge for Irish exit plan

Belgian bancassurance giant KBC Group has booked a €319 million charge in its latest set of quarterly accounts to cover costs of exiting the Irish market.

The figure includes €81 million in staff restructuring costs and €170 million of loan impairment charges, after agreeing to sell its €10 billion-plus loan book in two deals, KBC Group said in its third-quarter financial statement.

It also includes the writeoff of €53 million of an accumulated tax benefit – or so-called deferred tax assets – resulting from losses racked up during the financial crisis.

KBC Group said the charge served to push KBC Bank Ireland into a net loss of €282 million for the quarter and weighed on group profits, which came to €601 million.

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KBC Group agreed at the end of August to sell €1.1 billion of KBC Bank Ireland's non-performing loans to US distressed debt investment firm CarVal Investors. It followed up in October by signing a legally binding deal to sell its remaining €9.2 billion in Irish loans, mainly mortgages, to Bank of Ireland.

That accord also involves the transfer of KBC Ireland’s €4.4 billion deposits book.

While both banks agreed in applying so-called Transfer of Undertakings (Protection of Employment) regulations, or TUPE, allowing employees to move on existing terms under a business or assets sale, the €81 million charge underscores that considerable redundancies are expected among KBC Bank Ireland’s 1,300 workforce.

Still, the group has said it will able to record a €200 million gain on the completion of the loan book sales, which would largely offset the charge taken in the three months to the end of September.

Equity

The Belgian group said it expects the Bank of Ireland deal to conclude in the second half of next year. The Competition and Consumer Protection Commission (CCPC) decided last month to carry out a full phase-two investigation into the proposed transaction “in order to establish if it could lead to a substantial lessening of competition in the State”.

KBC Group said its overall so-called common equity Tier 1 capital ratio (CET1), a key measure of financial strength and ability to withstand shock losses, will increase by 0.9 percentage points once the Irish loan sales go through.

That’s because Irish-based banks have to hold more capital against mortgages than average European lenders as a legacy of the scale of the 2008 property crash and arrears crisis that subsequently unfolded in the Republic.

KBC Group’s CET1 ratio stood at 16.4 per cent at the end of September, well ahead of its medium term target of 14.5 per cent, excluding a one percentage point buffer it plans to hold for potential acquisitions or unexpected shocks.