KBC flags profit boost as €160m impairment charges are released

KBC Bank Ireland’s profits will be bolstered this year by the release of loan impairment charges of up to €160 million as the economy and property market here continue to recover.

In a first-quarter trading update on Thursday, the Irish bank’s Belgian parent group guided that it expected loan impairment releases of between €120 million and €160 million for the full year.

These were charges booked by the bank at the height of the financial crisis but can now be released due to improving property values as the economic recrovery gathers momentum.

KBC was boosted by a net impairment release of €50 million in Ireland in the first quarter, due mainly to the increase in the nine-month average housing price index and a further improvement in the non-performing portfolio.

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The Irish arm of KBC reported an after-tax profit of €67 million for the first quarter, up from €23 million a year earlier.

KBC’s stock of impaired loans (retail and corporate) fell by 16 per cent to €5.4 billion, down from €6.4 billion in the corresponding period last year.

Its stock of mortgage arrears reduced by more than 20 per cent year-on-year to €1.7 billion.

The bank added nearly 17,000 new Irish customer accounts in the first three months, with about 60 per cent of these opened through its revamped digital channel.

It has launched Android Pay and Apple Pay contactless payments capability, with 15 per cent of its customers already using them actively.

Pipeline

KBC did not give any specific details on mortgage lending for the first quarter but chief executive Wim Verbraeken said it had a "very strong pipeline building for 2017" that was now converting into drawdowns. "We have a 10 per cent market share on the book that has been quite stable over the years. What we're seeing today in terms of completions is confirming that position."

KBC’s chief financial officer Des McCarthy said the business has also seen “strong momentum” on consumer finance lending, which was “well ahead” of last year.

In terms of non-performing loans, KBC’s ratio is 40 per cent for retail and corporate.

While the European Central Bank has been pressing other Irish banks to reduce the ratio of NPLs to more normalised levels, KBC has so far avoided this scrutiny due to the strength of its parent group.

However, Mr Verbraeken signalled that this might change in the future. "Our NPL ratio is still quite high because we have not engaged in any portfolio transactions to offload ...distressed assets. We do expect in due course, it hasn't happened yet, that the regulator will engage with KBC Bank Ireland to look at our plans in that respect [NPL reduction]. We appreciate that this is a ratio that the regulator would expect to come down."

KBC’s parent saw net profit rise by 60 per cent to €630 million in the first quarter as lending and deposits rose.

The group also benefited from booking a deferred tax asset relating to the liquidation of IIB Finance Ireland. This resulted in a positive impact of €66 million and is regarded a tidying up of its corporate structure here.

KBC group also announced plans for an investor day that will be hosted in Dublin on June 21st.