KBC warns of Irish loan losses

Banking and insurance group KBC has posted second-quarter underlying net profit ahead of expectations but warned of possible higher loss provisions in the future because of non-performing Irish loans.

KBC, which has operations in Ireland and was formerly known as IIB Bank, said underlying net profit for the second quarter was €528 million as against €554 million for the same quarter a year earlier and €658 million for the first three months of 2011.

The group said the result was hit by an impairment of €102 million after tax on its portfolio of Greek sovereign bonds.

KBC said loan loss provisions rose from very low levels in the first quarter and warned of possible higher losses in the next few quarters due to difficulties in Ireland.

"Given the current economy and domestic Irish marketplace has not improved as was envisaged and the austerity measures do have a sizeable impact on households, challenging credit conditions will remain, fuelled by continued downward pressure on asset values and rising interest rates generating pressure on borrowers. This might lead to a higher loan loss provisions rate in the next quarters," it said.

KBC set aside €525 million last year to cover losses on its €17.2 billion of loans in Ireland. It has set now set asidea further  €49m for potential loan losses in its Irish subsidiary for the second quarter.

The group said its pro forma Tier 1 ratio, which includes the effect of divestments for which it has signed a sale agreement, stood at 14.3 percent up from the 13.7 per cent in the first quarter.

KBC in July amended the disposal plan it had to agree with the European Commission in exchange for approval of the €7 billion of state aid it received at the height of the credit crisis.

Instead of floating its Czech and Hungarian assets, the group will now sell its Polish units Kredyt Bank and Warta.

The group also has to sell its private banking arm KBL. Sources told Reuters in early August that private equity firm KKR was one of the companies shortlisted to close the deal.

KBC gave no further update on the sale of KBL.

Additional reporting: Reuters