Friday 21 November 2014

KBC rules out Irish merger but sell-off is still a possibility

Published 18/06/2014 | 02:30

KBC Group CEO Johan Thijs
KBC Group CEO Johan Thijs

The head of KBC Bank in Brussels told investors that a merger of its Irish unit with a rival is not on the cards.

However, a sale of KBC Ireland could happen after the unit returns to profit, targeted for 2016.

The comments will be seen as a blow to RBS's hopes of engineering a tie-up between its Ulster Bank unit here and a potential partner – possibly KBC or Permanent TSB – to create a so called "challenger" to AIB and Bank of Ireland.

KBC did look at the option of merging its Irish banking unit with the Irish unit of another, undisclosed lender, KBC Group chief executive officer Johan Thijs said yesterday.

However, it opted not to enter talks about a potential deal because, in its view, criteria such as price and capital position meant it was not a realistic option, Mr Thijs said.

He was speaking at the bank's Investor Day in Brussels.

Earlier, however, the Belgian lender confirmed that it may sell its Irish unit.

The "first priority for Ireland is to become profitable from 2016 onwards", according to a presentation circulated to investors.

After that options being considered for KBC Ireland include "whether to organically grow a profitable bank, build a captive bank-insurance group or sell a profitable bank," it said.

This will reignite fears that the exit of international banks from the Irish market may be far from over, after Bank of Scotland Ireland, Danske Bank and Rabobank / ACC all pulled out of some or all of their operations here in recent years.

KBC has stayed in Ireland but radically changed its business model here since the crash – moving out of business and property lending and developing a growing retail bank built around deposits and new mortgage lending.

At the end of March it had €15.1bn of loans and mortgages outstanding here.

According to its investor presentation it now has a 10pc market share in retail mortgage loans, and 3pc of retail deposits, despite not having a traditional mass branch network.

"KBC Ireland is making the transition from a digitally-led monoliner (mortgage) bank to a full retail bank. Having no heritage, they can take a fresh start to develop a complete retail product offering through digital channels. KBC Ireland will be our front-runner in implementing the new strategy," according to the investor presentation.

Targets for the Irish unit include bringing its cost to income ratio to less than 50pc by 2017 and generating a constant annual growth rate (CAGR) of 25pc of more over the same period.

Merrion Stockbrokers' Ciaran Callaghan said the bank has been competing hard to build up its retail business here.

"Anecdotally, KBC already appears to be taking an aggressive approach to Irish mortgage and deposit pricing, offering some of the most competitive rates in the sector as it attempts to grow market share," he said.

"Consequently it appears that KBC is likely to remain a real challenger to the pillar Irish banks (BoI and AIB) for the foreseeable future," he said.

In a statement, KBC Ireland said: "The future of KBC Bank in Ireland is to grow into a strong retail player offering compelling value to customers."

Meanwhile in Brussels, its parent said the bank intends to accelerate repayments of state rescue loans. It said it will make a final payment at the end of 2017 at the latest, instead of at the end of 2020 as agreed with European Commission.

The group still owes €2bn, excluding penalties, of the €7bn state aid that it received from Belgium at the height of the credit crisis. It added that it plans to use one third of excess capital generated until 2017 to make these payments. (Additional reporting Bloomberg)

Irish Independent

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