Wim and vigour: "People should watch out for what we're about to do"
KBC Bank Ireland is turning a profit and its chief executive Wim Verbraeken wants to take on the big guns. He spoke to Gavin McLoughlin
Wim Verbraeken is a happy man. He's just announced that KBC Bank Ireland, of which he's chief executive, is making money again. €75m after impairment charges and tax, to be precise.
We meet in the boardroom of KBC's offices on Dublin's Sandwith Street. The tall, softly spoken Belgian greets me with a handshake and shows me the view across the city towards Google's headquarters in the Docklands. When first KBC occupied the office, you could count 53 cranes on the skyline, he says. It's a lot fewer now, but Verbraeken says his bank is feeling the effects of a recovery.
Though he's wearing a pinstriped suit he's not quite your standard banker.
The 55-year-old is an ex-military man who listens to his daughter's electronic dance music. Work life began in the Belgian army after attending officers' school. "I was a troop commander, that was my first job, in Germany with the engineering troops of the Belgian army. Then I came back after a while and worked in a design agency for infrastructure projects as a civil engineer and an architect for NATO projects in Belgium.
"Around the fall of the Berlin Wall the paradigm was shifting between East and West, I thought perhaps I should consider other options. Doing an MBA set me up for a job at the predecessor of KBC - it was Kredietbank at the time - I joined them 24 years ago. I've been with the same group ever since.
"So I've only had two employers ever but changed job frequently. After a few years in the head office, where I managed property funds, I went international -and my first job was actually in Dublin.
"In the late Nineties I worked in one of KBC's finance companies in the Docklands, primarily for project finance outside Ireland, in the UK and Europe. I moved on from there to positions in New York, Hong Kong, Moscow and then back here."
His return to Dublin came in 2013. The country had changed a lot in the 13 years since he had left. Most visible perhaps were the improvements in infrastructure, to which his past career kept him attuned. He arrived in the new terminal at Dublin Airport, the port tunnel was "a revelation", and the Samuel Beckett Bridge perhaps the most marked transformation of the area of Dublin in which he had previously worked.
Less visible, but more potent perhaps, was the shabby state of the Irish economy.
"The country was in a different place in the sense that it felt like it was still the middle of the crisis, although a lot of measures that were put in place were gaining traction, and the country was slowly coming out of it.
"What was the surprising thing was the cohesion that was on display in terms of: 'We are in this mess, we are in this problem, but we're going to get out of it together.' I think this is something every outside observer would state is quite impressive. And that is why I like to work here. People get together, they're ambitious, they're business-minded and they get things done."
What Verbraeken has got done is put KBC's Irish arm in profit. Preliminary full-year results for 2105 released on Thursday show the bank made €75m after tax and impairment costs. There were more than 74,000 new customer accounts and its share of the mortgage market grew to 14pc. By contrast, in 2014, it had a net loss of €91m.
KBC's presence here has had a question mark hanging over it for some time. The parent group in Belgium has been mulling a sale of the unit, while stressing that the first priority was to be profitable from 2016 onwards. What effect do the latest results have on the Irish strategy?
"It is obviously helpful," Verbraeken says. "KBC Group, our parent, has been very very supportive. If you would list the support that we've been receiving in the last three years I think you would see a very sharp contrast with what has happened to some other subsidiaries of international groups, not to name them, who've left the country either quickly or slowly.
"But KBC has stuck, not only with the legacy and the problems that clearly emerged during the crisis in the retail mortgage portfolio, but also has given us a very significant budget for investment in our new strategy to build out not only the distribution platform, but also the IT investment that goes with it to be able to deliver that.
"These are the strongest signs of support that you could ask for. Obviously the fact that we were profitable in 2015 helps KBC Group to come to its determination about the future of Ireland in its portfolio. Senior management here, myself and my colleagues on the executive committee, are involved in that process. We're not detached...we're part of the discussion which will probably stretch out over the rest of the year I expect.
"There's a number of options. The ambition of KBC Group has always been to build a stand-alone, sustainably profitable banking operation. If possible also an insurance operation if that would be available because that is really the true calling of KBC Group.
"If you look at the core markets of where KBC is present. It would have a bank and an insurance operation because they see the benefits of combining both professions essentially. But that will depend on the circumstances in terms of the insurance.
"My job here is to ensure that the banking operation returns to sustainable profit. And 2015 was profitable. It's our job now to confirm that in subsequent quarters."
What will help the confirmation process is to encroach on the so-called pillar banks of AIB and Bank of Ireland. It's election time and Fianna Fail in particular has been harping on at length about the need for more competition in the sector. A stream of foreign banks have come and gone but KBC is still here, for now at least. How, then, does Verbraeken plan to eat Bernard Byrne and Richie Boucher's rather large lunch?
"To be honest most banking products are commodities. Current accounts are current accounts, mortgage loans, once you have them, are loans. You have to pay the interest and the principal. It's all about the experience before during and after your purchase. Each of the three phases is equally important and that's where KBC is seeking to make a difference compared to our competition.
"Obviously the fact that we did have a legacy branch network, legacy systems to some extent, gave us the chance to almost on a blank sheet of paper draw a business model from scratch. That's why we opted for what we call an omni-channel approach: the customer chooses the channel through which he wants to interact with us. We will make it as easy as possible to interact in a digital way because ultimately it is cheaper and there is a benefit for both sides.
"But we believe that for products that are more complex, such as a mortgage, insurance, asset management, customers would want to have human interaction. They would want to have that's human touch and we can provide that. We now have 15 hubs. We cover the major urban centres in Ireland which means that we are accessible for a large majority of that target audience.
"There's nothing quirky, we don't have a crystal ball. A lot of what we learn is by holding a finger on the pulse. Trial and error. The advantage is that as a smaller player we can try things without cannibalising an existing business model.
"Just to give you an example, we're in the middle of a mortgage campaign. We did focus groups with customers, we listened to what they had to say, what they really wanted, and that's when we went back and designed the product so that it matches as closely as possible these consumer preferences.
"Mortgage customers work off a monthly budget, for them it's important to know how much they will have left over at the end of the month after making all the payments to sustain their lives and the mortgage payment. They're not interested in gimmicks that could be once-off, that could be temporary. They want to plan their lives in the long-term.
"We're not afraid of more competition. Clearly, when KBC set out in its strategy that it wanted to focus on the retail consumer in Ireland, they had to consider a number of strategic options.
"We asked: 'How are we going to go about this, given that we don't have an established distribution networks, we don't have a physical footprint.' The decision was taken not to copy or even improve traditional methods of distribution of banking products, last century's best practices, and put banking branches in every corner of the country.
"KBC did a very thorough study to identify the audience within the Irish population that would be open to a new way of banking and interacting with their bank... it would probably primarily be the urban professionals that are digi-savvy, that are willing to transact to a large extent over remote channels - that is, either through a call centre, or in a digital fashion, online or mobile banking, for their day-to-day banking affairs.
"Obviously we've seen direct banks, we've seen providers who have gone the digital route before. They do exist. What was novel about the approach of KBC was that it was not about just being a digital bank, it was about the integration of various channels into a customer experience that would be outstanding, that would be differentiated."
What then of differentiation in terms of variable mortgage rates? It's been a hot topic over the last year or so with Irish rates far above the Eurozone average and there has been much commentary about gaps between the cost of funds and the rate charged. KBC's lowest standard variable rate is 4.05pc inclusive of a discount that goes to current account holders. So why are its rates at the level they are at?
"Our rates are under continuous review, they're not still... we believe that the current rates that we apply are accurate and are suitable in the sense that it's not only about the cost of funds.
"And by the way, not all banks have the same cost of funds, it depends on the country. You have the operating costs, you have the cost of regulation, which has increased let's say by 100pc in the sense that banks such as KBC, but also the incumbent banks, the pillar banks, are now not only regulated by teams here in Ireland but by the ECB in Frankfurt. That has not led to a lower cost of regulation.
"I'm not saying that regulation is bad. Given what happened during the crisis hands-on regulation is absolutely justified, but the costs have to be borne by the bank.
"There is a cost of credit. Given the history, it is clear that a mortgage in Ireland, if you would look at any sophisticated model, carries a higher risk than a mortgage in a country that hasn't had a history of boom and bust.
"And then there's the capital that needs to be held against the mortgage. Given the history, we need to hold a lot more capital against our mortgage loans than let's say our peers in other countries, and all of that gets reflected in the rate.
"We're watching the interest rate environment, we're watching the operating environment. We do that all the time, and today we can say that the rates are accurate for our position in the market.
"Obviously the recovery that we see there is going to be helpful... we feel good about the position that we have, the achievements that we have made happen. And we have great plans for the future. I think people should watch out for what we're about to do in the coming year."
I listen to classical music and dance music
My hobbies are...
"I've had to give up a few, given my schedule, I used to be a more avid cyclist and skiier but I've had to pare that back a bit. Now I'm more of a walker, my wife would like me to take her up on more proposals to go hillwalking but day trips are not as easy to schedule."
The book I'm reading is...
"It's called Being Mortal. There's an emotional connection to it because my mother is affected by dementia... I felt that I probably had to read up a bit on what it means for people to age."
The best piece of career advice I've gotten is...
"Never look back. I've made a number of radical choices, as you can guess from my story. I've always been fond of the memories - but I've never looked back."
My musical taste is ...
"Quite eclectic. I listen to classical music but also to dance music that my daughters pass me. My heroes, and this is showing my age, would probably be Bob Dylan, Bruce Springsteen and Van Morrison. I went to a concert of his in July in Cork at the Marquee."
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