10 February 2017
In publishing its preliminary results for 2016 yesterday, KBC Bank Ireland confirmed that it is staying here and will be a force to be reckoned with in terms of future banking in Ireland.
Its announcement at the beginning of 2016 that it was going to conduct a “strategic review” of its Irish operation fuelled speculation that it might be considering leaving, now that it has recovered from the recession and is worth selling. Also despite being in profit again it still faces challenges in Ireland as in order to compete with AIB and Bank of Ireland it has to undercut them, and they are inevitably fighting back – AIB has already introduced free banking for mortgage customers.
Yesterday’s announcement is good news for business and consumers, as KBC is not only staying but is making Ireland one of its core markets and is committed to playing a bigger role here, which will increase choice and borrowing possibilities for SMEs and personal customers.
It is also good news for the 1000+ people KBC employs in Ireland at the moment, a number that will likely increase in the future.
KBC’s commitment to remain in Ireland shows confidence in the recovery and ensures continuing competition in Irish banking, competition which can only be good for consumers.
KBC’s presence in Ireland
The Belgian bank began operating in Ireland over 40 years ago and has invested heavily here, especially in recent years. It struggled in the recession and incurred heavy losses due to bad debts in its mortgages and commercial loans, having originally focussed on corporate and real estate lending, but stayed, while other foreign banks such as Danske and Halifax left.
Over the last couple of years it managed to turn itself around and return to profitability. In the last 4 years KBC increased its customer base by 75% and its deposits by 109%.
The results published yesterday show a very good year for the bank in 2016 with a net profit of €227m, 70,000 new customer accounts and a 15% reduction in impaired loans.
Since 2013 it has concentrated on retail banking and now has around 200,000 Irish retail customers, or about 11% of the home-loan market. Half of its loan book is still considered impaired but steady progress is being made.
KBC has invested nearly €1.5bn over the years, which included investment in digital channels, banking systems and a physical presence in Ireland. It was the first retail bank in Ireland to offer customers digital mobile and desktop current account openings, and was one of the first to offer Android Pay, allowing customers to pay for goods and services using their mobile phone like a contactless card.
New products introduced in 2016 from KBC included the lowest personal loan rate of any bank on the market for over €10,000 at 6.3% APR, and the lowering of mortgage rates available for both new and current KBC mortgage customers, made KBC one of the most competitive mortgage providers on the market.
The bank acknowledged that it had identified a number of mortgage customers who may have been overcharged when wrongly prevented from reverting to tracker rates after fixing their home loans. It is refusing to say how many may have lost their homes as a result, because home loss is often multi-factorial. Neither can it say how many have been affected as KBC is still working with the Central Bank on the issue.
Having carried out its strategic review, KBC is committing to remaining in Ireland. The recovery in the economy, attractive demographics and the bank’s return to profitability led to the decision that it is well positioned to take advantage of opportunities that are now arising in the Irish market.
It is already attracting about 12% of new mortgages in a growing market. New mortgages are increasing by about 25% a year and it is forecasted that the market will double from €5bn to €10bn by 2020 given the demand for homes and rising house prices.
Its main growth strategy will be to invest in expertise and resources to evolve fully into a digital-first customer-centric bank with 24/7 accessibility in terms of distribution and service. This will be a future-proof model which should benefit KBC Ireland, its customers, staff and stakeholders. KBC Bank Ireland will be the frontrunner in the digital transformation of the KBC Group, testing digital solutions for roll-out throughout the group.
Having started in corporate and real estate lending and changing direction somewhat to focus on the retail market since the recession, KBC Bank Ireland now intends to target the small business market. Small business loans in Ireland are some of the most expensive in Europe and can be hard to get. Lack of competition between the main banks meant there was no incentive to reduce rates – up to now, as KBC’s aim to get a 10% share in the retail and micro-SME markets will give the others a run for their money!
KBC also plans to develop bank-insurance similar to other core markets of KBC Group, offering life and other insurance products.
There has been speculation that KBC might buy another bank or insurance business which would add greatly to the volume of its business here. Ulster Bank and Permanent TSB have both been mentioned as possible future partners, or alternatively FBD, which would suit the insurance side of the business and make KBC Bank Ireland similar in structure to the parent company. The bank has not confirmed an intention to takeover another business, but said that it would look into it should an opportunity arise.