Annual profit at KBC Ireland falls

Profit at the Irish division of Belgian banking and insurance group KBC fell to €92 million in 2009, while impairment costs substantially increased, the bank said today.

KBC Ireland said credit impairment costs rose to €176 million for the year ended December 31st 2009.

The bank said limited demand had hit its loan portfolio, which stood at €18 billion at year end. Home loans and residential investment loans accounted for €13.4 billion, about 9 per cent of the Irish market, while business loans were €2.9 billion.

Real estate lending comprised €1.7 billion, 9.4 per cent of its overall loan book. Some 3.5 per cent of the loan book was development loans.

The bank said arrears statistics in both the home loans and business categories showed a marked increase in the first half of 2009, but moderated in the second half of the year. There were some signs of stabilisation in the fourth quarter, the banks said, but it remains cautious.

Chief executive of KBC Ireland John Reynolds said the credit and funding environment was "very challenging".

"Our key consideration in 2010 is to support customers during what we believe will be another tough year and to generate an acceptable return for our shareholders. Our aim is to remain a long term, relevant lender to Irish personal and business customers," he said.

"In summary, our underlying profitability remains solid and we are looking forward positively towards our business over 2010. We expect the economy to show signs of moderate recovery towards the end of this year with the reasonable prospect of better times in 2011".

The KBC group suffered a lower-than-expected fourth-quarter net profit, due to provisions for eastern Europe and poor dealing room income, and expressed cautious optimism for 2010. KBC, which got €7 billion in state aid during the financial crisis, said net profit before one-offs was €218 million, compared with a €338 million forecast in a Reuters poll.

That was 24 per cent higher year on year, but down 65 per cent from a third quarter swelled by merchant banking division results and fixed income in particular.

Chief executive Jan Vanhevel said in a statement that excluding higher credit provisions and capital markets revenue, the result was similar to the third quarter. Net interest income and fees and commission earnings were higher than expected and operating expenses below.

KBC shares initially fell, but were up 2.2 per cent at €30.98 at 8.40am after a 4.4 per cent gain yesterday. The DJ Stoxx European banking index was 1.0 per cent higher.

Merchant banking was hit by weaker volumes and less favourable market conditions than in previous quarters as well as bond value adjustments to report a slight loss.

Loan-loss provisions in central and eastern Europe led to a loss of €79 million there. Hit by the global downturn and currency depreciations, the credit cost ratio rose to 2.1 per cent, against the 2.0-2.3 per cent range previously forecast.

KBC said Polish consumer finance unit Zagiel, set to be divested, was a major factor.

"We are encouraged by signs that the economy is improving and that we are therefore heading towards a turn in the credit cycle," Mr Vanhevel said, adding that KBC believed loan losses would "visibly" decline in 2010.

Italy's Unicredit, eastern Europe's biggest lender, said last month it expected non-performing loans there to peak in 2010, although provisions had probably hit highs in 2009.

"The economic recovery continued to gather pace during the fourth quarter and that has made us cautiously more optimistic for 2010, even though we all know the economic and financial environment remains vulnerable," Mr Vanhevel said.

Reuters