Belgian financial giant KBC Group is planning to quit the Republic after more than four decades and is in advanced talks to sell its performing loans and deposits to Bank of Ireland, reducing the number of retail banks in the country to just three.
The news comes eight weeks after UK lender NatWest decided to put its Ulster Bank unit into an orderly wind-down over the coming year. It struggled to make an acceptable return in a low interest-rate environment and also in a country where banks have to hold much higher levels of capital against loans than the average European lender.
Bank of Ireland, led by chief executive Francesca McDonagh and in which the State has a 14 per cent stake, made an approach to KBC in February on a potential deal, after learning late last year that the Belgian group may be reviewing its ongoing presence in Ireland, according to sources.
Talks intensified in recent weeks, with Minister for Finance Paschal Donohoe, who had been aware from earlier this week that a deal was in the offing, being officially informed at about 9pm on Thursday evening.
KBC Bank Ireland said it is "reviewing options to divest" its non-performing loans. This is likely to lead to a sale of the non-performing book to an overseas distressed debt fund.
The bank has €8.9 billion of performing loans and €1.4 billion of impaired loans, mainly mortgages, according to group figures for the end of last year. It currently has a share of about 12.6 per cent of the Irish mortgage market and about 1,400 employees.
"Given the challenging operational context for European banks and after careful consideration, we have reached an agreement with Bank of Ireland Group regarding the potential sale to Bank of Ireland Group of substantially all of the performing loan assets and liabilities of KBC Bank Ireland," said Johan Thijs, chief executive of KBC Group in Brussels.
KBC Bank Ireland's chief executive Peter Roebben said the lender will continue to offer banking and insurance services for the time being. "Our customers do not need to take any action as a result of today's announcement," he said.
The lender, originally set up as Irish Intercontinental Bank in 1973 before being acquired by KBC five years later, accounted for about one in 10 of every Irish mortgage drawn down in the lead-up to the bursting of the State's property bubble in 2008.
It reaffirmed its commitment to the Republic four years ago after carrying out a strategic review.
Bank of Ireland has officially entered into a memorandum of understanding (MoU) with KBC to explore a deal, according to both groups.
Ms McDonagh said her group looks “at opportunities we consider if they are a good fit for the customers involved and for the bank”.
“This MoU complements our strategy to grow our business in Ireland, and supports the investments we are making in the transformation of our systems and digital banking services,” she said. “We would be very pleased to provide KBC Ireland customers with a good home, and look forward to progressing our discussions with KBC over the coming period.”
The Minster for Finance described KBC’s decision as “regrettable”.
“The decision announced by KBC is a very significant event for the Irish banking sector, its staff and customers. Our thoughts immediately turn to KBC’s staff and the impact of this decision for them,” he added.
“The news that discussions have commenced with Bank of Ireland regarding substantially all of the performing loan assets and liabilities is welcome. It is my hope that these negotiations are concluded quickly and prioritise the continuation of financial services for these customers and the preservation of jobs.”
Ed Sibley, deputy governor prudential regulation at the Central Bank of Ireland, said its supervision of KBC and Bank of Ireland remains focused on “ensuring that affected customers are protected and treated fairly and that the banks are operating safely and soundly”.
“We do understand that there will be concerns that this transaction, if it goes ahead, will result in a further reduction in the level of competition in the Irish retail banking sector, and a reduction in choice for consumers,” Mr Sibley said.
“Competition issues are primarily a matter for the Competition and Consumer Protection Commission. However, competitive pressures can clearly have an effect on the functioning of the financial system and the achievement of the Central Bank’s aim for it to sustainably serve the needs of the people and businesses of Ireland.”
Any deal will be subject to approval from the Central Bank and the Competition and Consumer Protection Commission.
Bank of Ireland will not have to raise additional capital to carry out the purchase of KBC Bank Ireland loans, according to a spokesman for the bank.
“We envisage funding the transaction from internal resources,” the spokesman told The Irish Times in response to questions.
Bank of Ireland is also seen as the most likely acquirer of stockbroking firm Davy, which was put on the market last month in the wake of a bond-trade scandal. However, industry sources say that this, too, will not require the bank to raise further capital.