KBC Bank Ireland has been fined €18.3 million by the Central Bank for its role in the State's tracker mortgage scandal, which saw the lender devise a strategy to move borrowers off cheap loans and "persistently" resist as regulators pushed it to admit its failings.
Borrowers lost some 66 properties, including 11 family homes, as a result of the overcharging, the Central Bank said in a statement on Thursday.
The mortgage lender, part of the Belgium-based KBC Group, admitted to 12 regulatory breaches in the investigation. While this warranted a penalty of €26.2 million, it was reduced by 30 per cent under a standard discount where a company agrees to a settlement, the regulator said.
In addition to the fine, the bank has had to pay €153.5 million in refunds and compensation to 3,741 customers who had been affected for more than a decade. The bank failed to take proper steps to stop the harm after the Central Bank ordered lenders in late 2015 to search their loan books for cases where borrowers were wrongfully denied cheap loans tracking the European Central Bank (ECB) rate.
“Our investigation found KBC persistently refused to accept its failings despite having multiple opportunities to remedy the detriment that it was causing to its customers over an extended period,” said Seána Cunningham, the Central Bank’s enforcement director. “KBC’s actions in this regard, including the failure to adequately comply with the Stop the Harm principles of the [tracker mortgage examination], were simply unconscionable.”
The penalty is the second-largest levied by the Central Bank. Permanent TSB was fined €21 million in May last year for its involvement in the tracker scandal. Four other lenders, including Bank of Ireland, AIB and its EBS unit, and Ulster Bank remain under investigation. All have set aside provisions for likely fines.
More than 40,500 borrowers have been affected by the issue, which has resulted in more than €700 million being paid in refunds and compensation to date.
News of the KBC Ireland punishment comes 10 months after KBC Group chief executive Johan Thijs criticised the Central Bank on a call with analysts for its continued focus on the tracker mortgage scandal and lenders' other past sins, saying this "nitty-gritty stuff" was holding back the industry and supervisors needed to "turn the page". Mr Thijs was forced to apologise the following day for what he called "insensitive" remarks.
“We were always going to turn every page on this issue,” said Derville Rowland, director general for financial conduct at the Central Bank, adding that while the comments did not play a factor in the fine, they were “evidence of a certain culture”.
KBC Bank Ireland chief executive Peter Roebben said on Thursday that the tracker issue “is a hugely regrettable chapter in Irish banking and one from which we in KBC have learned significant lessons”.
“I profoundly apologise to KBC customers who were impacted by our management of their tracker mortgage,” he said.
KBC Bank Ireland withdrew tracker loans, a boom-time product, from the market in July 2008 as they had become unprofitable because banks’ funding costs fell out of sync with central bank rates and soared in financial markets.
The Central Bank investigation found that KBC Ireland subsequently moved within months to write to tracker customers, seeking to convince them to move onto fixed rates – ensuring that the mortgages would revert to more expensive standard variable loans at the end of the fixed period.
“Once this occurred, KBC could control the interest rate being charged. KBC failed to adequately warn those customers that they would not return to their tracker at the expiry of the fixed-rate period,” the regulator said.
In addition, the bank seized an opportunity in 2008 and 2009 to move tracker borrowers off this cheap product as they sought to enter a period of interest-only payments. Again, the bank failed to warn the customers that they would lose their tracker mortgage as a result.
KBC Ireland initially only admitted that 93 of its customers were affected by the industry-wide scandal, after the Central Bank began an examination into the matter in late 2015. The total number has since increased to more than 3,700 “but only following the sustained challenge and intervention of the Central Bank”, the authority said.
Law changes in 2013 doubled the maximum monetary penalty the regulator can impose on a financial firm for rule breaches, from €5 million to €10 million, or 10 per cent of turnover, and for individuals from €500,000 to €1 million.
The KBC Ireland fine covers rule breaches that occurred both before and after the 2013 change.
KBC Ireland grew out of KBC's 1978 purchase of Irish Intercontinental Bank (IIB) and went on to build up a 10 per cent share in the mortgage market before the 2008 property crash.
The Irish unit received a €1.4 billion bailout from its parent during the financial crisis. KBC Group recommitted to the Irish market in early 2017 after carrying out a review of the future of the local division.
A spokesman for the Department of Finance said the tracker issue “is a matter of serious concern, and it will take considerable time and effort to restore this broken trust in the banks”.