KBC Bank may sell off Irish operation

KBC Bank may sell its Irish operation as its parent company looks to raise capital.

The bank had said previously that Ireland is an area of attention. And reports indicate the group could divest KBC Bank Ireland and Absolut Bank in Russia to raise capital quickly.

Bank chief executive Jan Vanhevel said the chief challenges in the Irish market are the fall in property prices, GDP contraction and rising unemployment.

The bank’s board has reportedly proposed selling KBC Bank in Serbia and non-core activities in eastern Europe as part of a restructuring required by the European Commission.

KBC was bailed out over the past year with €7 billion of aid from the Belgian state and Flemish regional government, which the EU’s executive approved on condition the bank submitted a restructuring plan.

KBC presented its five-year plan to the Commission last week and a decision is expected by the end of the year.

KBC, which last month reported net profit of €409 million for the three months to June, said over 19% of its Irish mortgage book had a loan-to-value (LTV) ratio of more than 100%. The value of loans outstanding from customers in negative equity stood at €2.5bn at the end of June. This would be the equivalent of approximately 10,000 mortgages, assuming an average mortgage size of €250,000.

KBC chief financial officer Luc Philips said: “We don’t like to see that [for] 19% of our portfolio, our indexed loan to value ratio has risen to above 100 [%] and that’s... one of the reasons why we keep a very, very close watch on what’s going on in the Irish subsidiary.” The bank is also owed almost €5bn from mortgages granted in 2007 and 2008, after house prices peaked – 36% of its entire Irish mortgage book.

Half of KBC Ireland’s total €18.3bn loan book was now considered low risk, the bank said. It has also emerged KBC used €8bn from its loan portfolio from its Irish book as collateral for the European Central Bank. The bank is seeking around €10m frominsurance company Genworth to compensate it for the fall in the value of houses financed by its Irish mortgage lending subsidiary. It bought cover from Genworth to insure around €500m of its €13.5bn Irish mortgage book.

A KBC spokesman said: “The European decision is expected at the end of the year. Only then will KBC release more details and facts. No public statement has been made with regard to the disposal of any of its businesses and any comment is purely speculative.”