KBC signals interest in Irish deals as it commits to market

Banking giant says it will make Republic one of its ‘core countries’ following profit surge

KBC Bank Ireland  saw net profit jump to €227 million last year from €75 million in 2015. Photograph: Bryan O’Brien

KBC Bank Ireland saw net profit jump to €227 million last year from €75 million in 2015. Photograph: Bryan O’Brien

 

KBC Group signalled its interest in mergers and acquisitions in Ireland after the Belgian banking giant affirmed its commitment to the Republic on Thursday, drawing a line under more than two years of speculation about its future in the market.

The group, which has more than 1,000 employees in the Republic, where it has been established since 1978, accompanied its full-year results on Thursday morning by saying it will make Ireland one of its six “core countries” as it is “a sound and attractive market in which we wish to play a more active role”.

Briefing analysts after the announcement, group chief executive Johan Thijs said while the plan is to grow the Irish business organically, the bank will consider bank and insurance deals in the country if and when they arise.

He also indicated the bank may hire an additional 100 people in Ireland as it grows.

“We don’t have a file on the table on the banking side [in Ireland] nor do we have a file on the table on the insurance side,” Mr Thijs said. “If the opportunity arises, we will do our homework as we always do.”

Analysts from Deutsche Bank to Investec have speculated that KBC could eventually combine with either Permanent TSB or Royal Bank of Scotland’s Ulster Bank – or both – to form a “third force” in Irish banking.

Mr Thijs also noted that while KBC Bank Ireland will continue to develop its insurance business through partnerships and collaboration, it would also be interested in an insurance deal in the country.

Life insurance

KBC Bank Ireland offers life insurance products in partnership with Irish Life, while it collaborates with Zurich Insurance in providing motor, home and other general coverage.

KBC Bank Ireland, which saw net profit jump to €227 million last year from €75 million in 2015, said it will “strive to achieve at least 10 per cent market share” in the retail and small business segments of the market, where it will focus on professionals such as doctors, dentists and solicitors practices.

The group, which injected €1.4 billion of capital into the Irish unit during the financial crisis to cope with losses on mortgage loans, said in 2014 it would consider all options for the Irish unit, including whether to grow a profitable bank organically, build a bank-insurance group or sell the business.

KBC Bank Ireland “managed to return to profitability as soon as 2015, earlier than we anticipated and, on the back of the encouraging turnaround, they achieved strong results for financial year 2016,” Mr Thijs said, adding that the group aims to develop a “sustainable future-proof business model” in Ireland over the long term.

The Irish unit’s chief executive Wim Verbraeken told The Irish Times on Thursday that his team is working on making the first dividend payment from Dublin to the Belgian parent since before the crisis. He declined to give a figure but said that it will depend on what capital it needs for its growth plans and to leave the business with a reasonable buffer.

Having spent €67 million on systems and IT over the past four years, KBC Bank Ireland plans to spend a similar amount in the coming years as it centres itself around a mainly digital offering.

Irish Intercontinental Bank

The lender, originally set up as Irish Intercontinental Bank in 1973 before being acquired by KBC five years later, accounted for about one in ten of every Irish mortgage drawn down in the lead-up to the bursting of the State’s property bubble a decade ago. It is currently writing between 11 per cent and 13 per cent of mortgages in Ireland.

After setting aside hundreds of millions of euros of provisions to absorb loan losses during the crisis, KBC Bank Ireland began to release some of this money last year as the economy continues to improve and the company’s level of troubled loans declines.

The unit released €45 million of provisions in 2016, compared to a net loan-loss charge of €48 million for 2015, as its level of impaired loans fell by 14 per cent to €5.7 billion. It expects to release a further €25 million to €75 million of provisions this year.