KBC sees Irish house prices falling 12% amid Covid-19

KBC Group sees house prices in the Republic falling by 12 per cent this year, as the economy deals with the coronavirus crisis, the Belgian banking giant signalled on Thursday as it reported that its Irish unit managed to remain profitable in the first quarter.

The figure is described as a “base case” in a presentation prepared by KBC Group for analysts as it seeks to map out potential bad loan losses across its markets. It would mark the first decline in Irish residential values since 2012.

House prices are expected to rally by 8 per cent next year, according to KBC Group slides. However, a pessimistic scenario could see home valuations plunging by 20 per cent this year and a further 5 per cent in 2021, it said.

"With a lot of people having uncertainty about the continuation of their income, their jobs and so forth, it's a wait-and-see market at the moment," KBC Bank Ireland chief executive Peter Roebben told The Irish Times, adding that the level of transactions is likely to fall at a sharper pace than valuations this year.

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Problem loans

KBC Bank Ireland contributed a €12 million net profit to its Brussels-based parent in the first quarter, as the unit released €2 million of net loan loss provisions previously set aside and which were not needed as level of problem loans continued its improve following the last crisis.

The wider KBC Group took a €43 million specific loan charge relating to the coronavirus pandemic, based on its views of what sectors will be most affected, and forecast that full-year related impairment will come to €1.1 billion.

The Irish division’s percentage of impaired and risky loans fell to 15.7 per cent in the first quarter from 22.7 per cent a year earlier. KBC applies the strictest classification of a problem loan in the Irish market, making its figures difficult to compare to other lenders.

“While the Irish economy began 2020 with substantial positive momentum, the Covid-19 pandemic is likely to have a large negative impact on activity reflecting the effects of a significant health-related shutdown on domestic demand as well as weaker export markets,” KBC said.

“In common with other countries, the Irish jobs market has suffered a major shock as a result of the pandemic. Although government measures have supported incomes and sought to maintain workers links with affected companies, unemployment could end the year around twice the 5 per cent rate seen at the start of 2020.”

Pensions

Meanwhile, KBC Bank Ireland announced that it plans to launch a pensions and life insurance offering on a phased basis from a new local branch of its Belgian insurance unit. KBC had signalled earlier this year that it planned to end a long-term partnership with Irish Life in 2021.

The group operates a bancassurance model in all of its other core markets and it had been looking at insurance options since reaffirming its commitment to Ireland in 2017 following a strategic review.