KBC BANK Ireland expects to return to profit this year after €525 million in impairment charges pushed it into a €177 million loss for 2010.

The bank described last year’s performance as “disappointing”, saying the downturn had gone deeper than expected.

“We hope we will look back on 2010 as our worst year,” said KBC Ireland chief executive John Reynolds. He pointed out that the bank, which is owned by Belgian group KBC, was self-sufficient and was not facing capital problems.

The bank does expect to face further impairment charges this year, with Mr Reynolds pencilling in up to €200 million to reflect non-performing loans within its €17.2 billion total loan book.

In an attempt to counter this, KBC will step up its efforts to attract deposits, and hopes to end the year in profit. The bank’s deposit book grew by €1.4 billion to €5.4 billion in 2010 as cash seeped out of Irish-owned banks.

Last year’s loan impairment charge of €525 million at KBC compares to a €176 million equivalent charge in 2009.

Some 7.4 per cent of KBC’s €9.8 billion in owner-occupier mortgages are in arrears by more than 90 days, up from 6.9 per cent last September. About 4.5 per cent of owner-occupier loans are in arrears by less than 90 days.

For the bank’s €3.3 billion buy-to-let mortgage book, the proportion of 90-day arrears has climbed from 9.5 per cent to 10.9 per cent. Mr Reynolds acknowledged the increase, but said the pace of growth in mortgage arrears seems to have slowed. “The absolute quantum of mortgage customers in arrears is not increasing at the same pace.”

However last year’s 90-day arrears are now turning into longer-term backlogs, said Mr Reynolds, with the result that the bank expects its long-term arrears problems to increase this year.

The bank, unlike some other institutions, is not planning a debt forgiveness scheme, with Mr Reynolds describing such a plan as a “daft idea”.

He would not be drawn on when the bank might raise its standard variable mortgage rate, but acknowledged that the trend was upward. KBC added up to 1.05 percentage points to its new fixed loans this week.

The bank did not build up a large business in development loans, so is not suffering as much as some other lenders.

At the end of last year, €600 million of its total €1.9 billion in property lending was represented by development loans.

Mr Reynolds reported limited demand for new lending, with the bank’s loan book falling back by €800 million over last year.

The bank expects to increase its online presence as it seeks to expand its deposit base.

Mr Reynolds said KBC had no interest in bidding for the deposit books of Irish Nationwide and Anglo Irish Bank.