The Irish Times view on KBC’s exit: a bad day for staff and consumers

The bank’s likely departure from the Republic will reduce competition and raise serious questions for the Government

KBC’s exit would leave just three significant players left standing – AIB, Bank of Ireland and Permanent TSB. Photograph: Mark Stedman/RollingNews.ie

KBC’s exit would leave just three significant players left standing – AIB, Bank of Ireland and Permanent TSB. Photograph: Mark Stedman/RollingNews.ie

 

The surprise announcement that Belgian lender KBC is poised to exit the Irish market is a further blow to competition in the retail banking sector, just eight weeks after NatWest confirmed that it would wind down Ulster Bank’s operation in the Republic.

KBC has signed a memorandum of understanding with Bank of Ireland to sell all of its performing loan assets and liabilities. Its non-performing loans will be dealt with separately, presumably in a fire sale to a so-called vulture fund.

KBC has operated in the Republic since 1978. The bank has €8.9 billion of performing loans and €1.4 billion of impaired loans, mainly mortgages, according to figures for the end of last year. It has a 12.6 per cent share of the mortgage market and 1,400 employees. Staff and customers will be worried about what lies ahead.

KBC’s exit would leave just three significant players standing – AIB, Bank of Ireland and Permanent TSB. All of them have the State as a shareholder – AIB and PTSB are majority owned while the State holds 14 per cent of Bank of Ireland – which is far from an ideal scenario.

In the wake of the KBC news, Minister for Finance Paschal Donohoe said its decision was regrettable but that there would still be strong competition here. Yet there’s no getting away from the fact that five banks is better than three for consumers in terms of competition and that Ulster Bank and KBC offered some of the most competitive straight-up mortgage rates in the market. KBC was also a frontrunner in digital banking.

The reality is that NatWest (Ulster Bank’s parent group) and KBC are departing as they do not see any near-term prospect of making an acceptable return for their plc shareholders from the Irish market. This is in spite of interest rates here being roughly double the average across the European Union.

They are both still counting the costs of the banking crash, having been bailed out by their parent groups. The fallout from the pandemic will inevitably lead to write-downs in bank loan books on both business and personal borrowings, and there is no end in sight to the era of ultra-low interest rates. Irish banks are also required to hold about three times as much capital on their books as their peers in other European markets, a legacy of the 2008 crash.

Another major factor is the difficulty in repossessing homes when a borrower is in default with no hope of repaying their loan. It is a tortuously slow process, with little political appetite for change.

New entrants are unlikely to come into the Irish market in any substantial form until these issues are tackled. This is bad news for consumers and gives the Government and the Central Bank of Ireland, as regulator, much to ponder as they seek to plot a post-pandemic future.

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