Belgian bank faces €263m hit here

BELGIAN bank, KBC, said it saw a further deterioration in the Irish market in the fourth quarter and will take a €263 million hit here.

The bank is taking additional net provisions of up to €330m to account for losses at its Irish loan portfolio and for irregularities at KBC Lease UK.

It expects the accelerated restructuring of Irish banks to cut asset values while a slower economic recovery will hurt employment and increase the risk of defaults.

It said net provisions will total €315m to €330m, depending on the tax impact. The effect on the reported profit “will not be substantial,” the Brussels-based company said.

The bank’s Irish unit is increasing provisions for real estate developments, investment financing activities and residential mortgages after assessing the economic impact of the bailout package.

KBC said net provisions for the Irish unit in the fourth quarter will amount to about €263m after forecasting average loan impairments of about €40m a quarter on November 10. The unit is “sufficiently capitalised,” it said.

MF Global analyst, Simon Maughan said he was not surprised by the announcement given the group’s coverage for their non-performing loans.

“While they’ve said in previous quarters that their non-performing loans coverage was on a par with other Irish banks, we know that other Irish banks have had to increase their impairment provisions. So it’s just a case of catch up and management were premature in forecasting a profit for the Irish business this year,” he said.

Mr Maughan said that the UK Lease provisions were a surprise.

KBC also made a provision after identifying “irregularities” in some contracts between KBC Lease UK and third parties. An investigation is being conducted into the matter.

The maximum potential net amount of the irregularities is estimated at about €150m, the bank said.

KBC Lease UK provides long-term financing of investments in assets such as information and communications technology.

Last month Lloyds warned that it needed to take far higher provisions on its Irish operations as more commercial real estate and home loans soured.

KBC will announce its fourth-quarter and full-year results on February 10. It said it expects its underlying results from other units for the fourth quarter to be in line with its expectations.

In Ireland KBC owns KBC Bank Ireland as well as KBC Finance Ireland.