Belgian financial services group KBC, which today announced its second quarter results, has said that developments at its Irish subsidiary remain an area of attention.
Loans losses this year to date for KBC Ireland, which is the country's fifth biggest mortgage lender, rose this year and totalled €62 million in the first half of the year. The proportion of high risk loans now stands at 8.1 per cent and non-performing loans at 5.6 per cent.
KBC's chief executive officer Jan Vanhevel said that while conditions are worsening in Ireland, 86 per cent of KBC's portfolio here is still considered to be low or medium risk.
Mr Vanhevel added that thought conditions are worsening in Ireland, 86 per cent of KBC Ireland's portfolio is considered to be low or medium risk.
The Irish subsidary, which was rebranded from IIB to KBC last year, contributed €42 million to group profits.
Commercial real estate development exposure is limited to 4 per cent of the portfolio, according to the latest figures.
Non-performing loans have risen to 5.6 per cent from 4.6 per cent in the first quarter,bringing year-to-date credit cost ratioto 67 basic points, compared with 35 basic points for the first three months of the year.
The group returned to profit in the second quarter, after three straight quarterly losses, boosted by the €1.3 billion impact of revaluing its credit portfolio.
The Belgian-based group reported an underlying net profit, excluding exceptionals, that beat expectations, helped by sharp cost control.
The €409 million figure was down 49 per cent year-on-year but above analysts' expectations.
Its Belgian business was most robust, with earnings down only 9 percent. Operating expenses fell by 14 per cent year-on-year.
"Business margins remained strong, sentiment on the capital markets improved, insurance results were solid and cost cutting is paying off. Trends for problem loans rose, but remained within expectations," said new chief executive Jan Vanhevel.
The group made a net loss of €3.6 billion in the first quarter because of credit writedowns, and secured further state guarantees to cover further potential hits.
Most of the first-quarter losses were caused by the worsening credit worthiness of US bond insurer MBIA.
The group again took a large number of one-offs in the second quarter.
The main items were the €1.3 billion positive for CDO (collateralised debt obligation) revaluation, a €0.7 billion after-tax payment for the state guarantees and a €0.7 billion mark-down for trading positions that are being run off.
KBC, the fifth-largest bank by assets in emerging Europe, said that volume growth slowed in eastern Europe.
Loan-losses in its core Belgium and eastern Europe markets were stable compared with the first quarter, but rose elsewhere, such as for US mortgage-backed securities and Irish residential mortgages.
Emerging Europe's economies are set to shrink 5 per cent this year as exports to western Europe dwindle and capital inflows fall.
KBC's rivals in eastern Europe have generally beat forecasts in the second quarter, principally due to trading results, although a number have raised bad debt provisions.
The group said it was working on a comprehensive review of its strategy -- it has already cut corporate lending outside its home markets and begun running off structured finance activities.
Additional reporting: Reuters
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