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Mark Stedman/RollingNews.ie

Why KBC is thinking of cashing out of Ireland - and why it's being tipped to stay

The lender’s 1,000 local staff are sweating on a decision tomorrow.

NO ONE WOULD have been surprised to see a bank getting out of the Irish market just a few years ago.

However, almost a decade on from the financial crash and with Ireland firmly in growth mode again, one bank, KBC, is considering pulling out of the eurozone’s fastest-growing economy.

Tomorrow, Belgian-owned KBC is set to announce the results of a strategic review of its Irish business. The company is considering a few different options, one of which is selling KBC Ireland, something which is keeping its 1,000 Irish staff on edge.

This is why it’s looking at a sale – and how that process could be decided:

Bailout

In the 1990s two major Irish banks dominated the market, but the arrival of  foreign-owned banks such as Danske and Halifax during the Celtic Tiger was seen by many as heralding a new competitive era for Irish banking.

However it was not to last, as most banks fled during the recession, leaving Bank of Ireland and AIB to largely dominate the market.

One of the few that stuck around was KBC, although it could easily have gone either way. The bank, which had focused on corporate and real estate lending, was in bad shape during the depths of the recession with a lot of poorly performing loans.

In 2012, KBC head office, which itself received a state bailout during the financial crisis, decided to start sticking money into its Irish arm for the first time since 2008. This was shortly after KBC Ireland had started posting losses in 2011.

90330477_90330477 Mark Stedman / RollingNews.ie Mark Stedman / RollingNews.ie / RollingNews.ie

KBC kept putting money in, and for years the offshoot remained a drag. The Belgian firm had injected the guts of €1.4 billion by 2015, when KBC Ireland finally started to make a decent profit.

Turnaround

The Irish firm started a turnaround plan in 2013, bringing in former Belgian army officer Wim Verbraeken to help reinvented itself as a retail bank, putting a push on retail mortgage lending and working through bad loans.

The company now has about 200,000 Irish retail customers, or about 11% of the home-loan market. It added almost 50,000 new customers in the first nine months of 2016, and made a profit of €89 million during that period.

However, just under half of its loan book is still classified as impaired. While this number has been coming down, working through the bad loans is still a headwind for the bank.

KBC announced at the start of 2016 that it was going to conduct a “strategic review” of its Irish business. Often, when someone announces a strategic review it is tantamount to hanging a ‘for sale’ sign in the window.

This is one of the options that is being considered, although there appears to be a good chance that KBC will opt to stay.

File Pics KBC Bank Ireland has reported a loss of 864 million for the year following loan impairment costs of 1.06 billion. Leon Farrell / RollingNews.ie Leon Farrell / RollingNews.ie / RollingNews.ie

Three choices

The three main choices for the Belgians are: maintain the status quo and try and grow organically as a retail bank, try and grow KBC Ireland by acquiring other financial institutions, or sell off its Irish arm altogether now that it is profitable.

A few weeks ago, analysts at Deutsche Bank tipped the first option – telling investors they ”expect the strategic decision regarding Ireland to be for the status quo”. In the meantime, the bank has continued with its advertising – another indicator it isn’t about to head for the exit.

Nevertheless, the company still faces challenges in Ireland, despite a significant pickup in mortgage lending in the market. To compete with AIB and Bank of Ireland, KBC has to undercut them, a costly move which has brought retaliation, such as AIB’s introduction of free banking for mortgage customers.

A potential tie up with one of the other smaller lenders, such as Ulster Bank or Permanent TSB, has been mooted. However, Verbraeken told the Irish Times in November that KBC Ireland’s preferred option is to become a bank-insurance company.

To do this the company would need to either buy an Irish insurance company, or set up an operation in the industry itself. Either this or some deferred decision looks more likely than a sale.

Verbraeken told the Irish Times that the group would only move to sell the business if the other options under review failed. However, it is unlikely that the nerves of KBC Ireland staff will be calmed until they see something in writing tomorrow morning.

Written by Paul O’Donoghue and posted on Fora.ie

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    Mute michal heba
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    Apr 26th 2020, 7:04 AM

    It’s affecting USA and Germany this time, so now we need to change the rules… Before it only affected smal countries like Ireland that owed to Germany…

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    Mute Paul Power
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    Apr 26th 2020, 7:18 AM

    @michal heba: your 100% right with that comment !

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    Mute Peter Hughes
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    Apr 26th 2020, 7:39 AM

    @michal heba: The thing is Last time as you put it our government was warned about the massive housing bubble and how it would all end in tears and continued the corrupt greed fest regardless all voted for by us….and you expect other countries to then foot the bill for that?….if it was the other way round trust me you would be saying why should we pay for a self inflicted wound of shocking governance?…this time there was nothing anyone could have done to stop this from happening….big difference.

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    Mute Shamey
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    Apr 26th 2020, 8:23 AM

    @Peter Hughes: not really voted for by us….just the banks handing out money willy nilly to the masses (knowing that at the end of the day, they’d get their money back), who’d say no to money on a plate as it were. The only ones left high and dry were carpenters, sub contractors and taxpayers etc.

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    Mute NotMyIreland
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    Apr 26th 2020, 8:33 AM

    @michal heba: And the last one which started with sub prime mortgages in the USA, didn’t affect the USA?

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    Mute michal heba
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    Apr 26th 2020, 8:38 AM

    @Peter Hughes: we have been told not to burn senior bond holders(Germany). they have invested in to Irish banks and risked their money. When everything collapsed they wanted money back and they got it.

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    Mute Thomas Harrington
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    Apr 26th 2020, 8:45 AM

    @michal heba: boom there you go! Spot in

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    Mute Seanboy
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    Apr 26th 2020, 9:57 AM

    @Peter Hughes: the money Irish banks lent recklessly had been lent to them recklessly. Why were only the Irish people punished, why was the burden not shared by all involved in the recklessness.

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    Mute Simon Dottcom
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    Apr 26th 2020, 10:13 AM

    @Thomas Harrington: I presume you mean “spot on”

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    Mute john doe
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    Apr 26th 2020, 1:00 PM

    @Peter Hughes: the cause of the crisis while not irrelevant is not the discussion, the discussion is that Policies of austerity were not helpful and had we borrowed to fund large infrastructural projects, to stimulate our economy as the parties of the left were ridiculed for suggesting we would have come out of recession in 5 years instead of the ten it took.
    This was exactly the financial approach promoted by gerry addams and sinn fein at the time and they were told it was “shinnernomics”

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    Mute Adam Hernes
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    Apr 26th 2020, 1:10 PM

    @michal heba: No. These is an overall consensus that the people payd for the banking debth. Bailing out banks and big corporations won’t fly this time. The political class knows that they will have fascists governments in half of European countries by the end of the year with new austerity. People will not take it again. Politicians think only amount their buts.

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    Mute Vin
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    Apr 26th 2020, 1:19 PM

    @NotMyIreland: it was “sub prime” lending practices worldwide, the USA just popped first. I don’t know the breakdown of private mortgages vs developers here. But either way people borrowed what they couldn’t pay back with the infamous anglo being the worst. I believe their customers were mostly commercial

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    Mute Mark V
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    Apr 26th 2020, 6:07 PM

    @Peter Hughes: You seem to have forgotten that a lot of that debt was unsecured bonds. The EU forced Ireland to guarantee these so German, Dutch and other major EU nations didn’t have to prop up their banks, insurance companies and pension funds.

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    Mute Niall O'Sullivan
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    Apr 27th 2020, 8:10 AM

    @michal heba: We could have left some of the banks go to the wall until Brian Lenihan nationalised the debt. This turned it into a potential sovereign default and meant the taxpayers owed the money instead of the bank. Also inflation is low now and we aren’t really seeing risk of an overheated economy and runaway inflation so the rules are much looser.

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    Mute Karllye kripton
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    Apr 26th 2020, 8:00 AM

    Only when the last tree is cut down or when the last animal is killed for food only then will people release that we can’t eat money and it really is worth less than the paper it’s printed on

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    Mute patrick boland
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    Apr 26th 2020, 9:02 AM

    @Karllye kripton: that is so like the Cree Indian proverb. ‘Only when the last tree has died and the last river been poisoned and the last fish been caught will we realise we cannot eat money’.

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    Mute Karllye kripton
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    Apr 26th 2020, 10:13 AM

    @patrick boland: I probably got it form there I probably read it somewhere along the line and that’s what came to mind

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    Mute Arthur O'Neill
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    Apr 26th 2020, 8:13 AM

    Why do governments borrow? A sovereign state should print money. Sure the currency will initially devalue but over time the increased taxes placed on the citizens will replenish the pot. So surely governments should avoid borrowing from private Banks where the debt is loaded with interest.

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    Mute King B
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    Apr 26th 2020, 8:21 AM

    @Arthur O’Neill: see Germany after ww1 for reference.

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    Mute Gerard Carthy
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    Apr 26th 2020, 8:41 AM

    @Arthur O’Neill: Toure right of course, the EVB could creat 2 trillion in non repayable or payable on 100 years funds with no coupon and just let states spend it on infrastructure, energy housing. Also investing 20% of it in Africa, like Xhina was doing, would be strategically smart.
    There is no risk here of inflation, never mind hyper inflation, the economy oils bog enough to absorb it.
    The only issue is ideological politicians in Germany who have spent the last two decades telling their voters that debt is evil.

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    Mute Arthur O'Neill
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    Apr 26th 2020, 8:42 AM

    @King B: Thats an extreme example.

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    Mute Mickety Dee
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    Apr 26th 2020, 8:44 AM

    @Gerard Carthy: a ton of extra cash chasing the same limited resources. How can that not lead to inflation?

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    Mute Fintan O'flaois
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    Apr 26th 2020, 8:47 AM

    @Arthur O’Neill: Because ultimately you end up like Zimbabwe or Venezuela.

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    Mute Arthur O'Neill
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    Apr 26th 2020, 9:20 AM

    @Fintan O’flaois: if misused by dictatorships yes. Used correctly no different to borrowing. Printing by the state vs borrowing from private banks – both scenarios give a cash injection to the economy, which will be redacted over time.

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    Mute Fintan O'flaois
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    Apr 26th 2020, 9:34 AM

    @Arthur O’Neill: Irresponsible monitory policy is not exclusive to dictatorships, however, in democracies sane voices then to prevail before the “money printers” destroy the economy. The benefits of controlling money supply and maintaining modest inflationary targets are well established – countries that do it tend to prosper, countries that don’t tend to struggle.
    Milton Friedman advocated what you’re suggesting on the proviso that the excess money supply would be retired at a time of fiscal surplus, so the net supply of money would remain in balance over time. Unfortunately, I just can’t imagine our government retiring money supply at a time of surplus, so we’d end up in an inflationary bubble, a la Zimbabwe and Venezuela.

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    Mute Cormac O' Keeffe
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    Apr 26th 2020, 9:41 AM

    @Arthur O’Neill: you don’t have to look to dictatorships for examples of governments placing too much emphasis on growing an economy in nominal terms and not enough on inflation. It was a curse in almost every advanced economy in the 70s and 80s. Germany in many ways showed the benefits of controlling inflation and how it could be done. Imagine the panic buying of toilet roll if we had hyperinflation :-)

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    Mute Bilbo Baggins
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    Apr 26th 2020, 10:17 AM

    @Arthur O’Neill: But only one increases the actual amount of money in the economy. Printing money in general leads to negative inflationary and devaluing effects. Hyperinflation is not just based on the responsibility of those in power but the world economic view of the value and stability of a currency, if you just keep printing your own it is of less value to people. So it devalues making everything purchased abroad more expensive. Putting you back in the same place as you began. That’s normal circumstances. But now is different. Money will need to be printed by everybody.

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    Mute Aidan Murray
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    Apr 26th 2020, 11:53 AM

    @Arthur O’Neill: I think this is a potential solution … but not with countries acting unilaterally. If all the major central banks agree to act simultaneously and print x amount per person in every country, then there will be no currency devaluation but there will be money across the world to resuscitate the worldwide economy.

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    Mute Sean Salmon
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    Apr 26th 2020, 12:05 PM

    @Arthur O’Neill: that is what the ECB are doing along with America and other major countries. This will sooner or later feed high inflation high interest rates major defaults by poorest countries and the collapse of the world’s financial system. Sorry to bring bad news but economically expanding money supply in a contracting economy is suicide unsustainable and for the sake of a short term illusion of dealing with a problem is ultimately going to compound an already bad situation

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    Mute lambda sensor
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    Apr 26th 2020, 10:11 AM

    None of this is new. We simply ignored it in Europe last time at the behest of Germany and NL. The US, in contrast, spent their way out of the last crash and their economy soared. Europe’s never really recovered.

    Keynesian economics was followed in the US whereas austerity economics (a new and untested form) was followed in the EU. The results are clear. EU GPD in 2008 was 19.1Tr, US was 14.7. In 2018 EU was 18.7Tr and the US was 20.5Tr (stats from world bank).

    The reason there is a rethink on this is because austerity economics didn’t work. This was widely called out at the time but ignored. Most European countries had austerity forced on them as part of getting access to Troika or EU money.

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    Mute Karllye kripton
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    Apr 26th 2020, 10:17 AM

    @lambda sensor: https://youtu.be/jsV_YXq-1×4

    Very good I highly recommend watching

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    Mute Lisa Saputo
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    Apr 26th 2020, 9:38 AM

    We all could have told these intellectuals that boosting the economy works better than strangling it if they had asked.

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    Mute Sean Fahey
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    Apr 26th 2020, 12:00 PM

    @Lisa Saputo: So you would have told the intellectuals not to cut costs when we’re bankrupt in the midst of a financial crisis where we couldn’t borrow our way out of trouble and had to go cap in hand to the IMF who imposed restrictions so we could afford to keep the lights on?

    And once you were done with the intellectuals, what would you have told the civil servants when the wages aren’t lodged to their accounts?

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    Mute Joe Griffin
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    Apr 26th 2020, 11:00 AM

    It’s called Keynesianism after the famous economist. But unfortunately those who stand to make the most out of our current austerity driven system haven’t allowed this approach. And I include political power as well as wealth in this. It’s much easier to control the population if you kep a good proportion poor and frightened of fighting for their rights. Austerity has always been about political control not about economies.

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    Mute Patrick
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    Apr 26th 2020, 10:36 AM

    I remember reading that when America went into recession in previous decades,the president of the day started massive infrastructure projects which were cheaper to do but kept the country ticking along.
    Austerity was not the way as some countries were in trouble even before this pandemic.
    What will EU countries debts look like after this and I wonder will some debt forgiveness happen or at the very least drop the interest payments?

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    Mute Cormac O' Keeffe
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    Apr 26th 2020, 9:47 AM

    Also, the real economic failing that becomes apparent at these times is the lack of preparedness of governments like ours did to their reluctance to adequately follow counter cyclical economic policies. We had a government boasting about the fastest growing economy in Europe for half a decade and we had virtually no surplus and very little rainy day fund available. The fiscal advisory council were largely ignored and it kind of shows that due to the desire to be re-elected politicians can really be trusted with fiscal policy as well as monetary policy.

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    Mute john doe
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    Apr 26th 2020, 12:52 PM

    Interesting that the article backs up the economic approach begged for by people like Paul Murphy, Gerry Addams and Yanis Varoufakis during the last fiscal crisis. All of whom promoted borrowing to fund large infrastructural projects instead of austerity.
    Their suggestions were ridiculed by our government (still our government) at the time and a lot of posters on here now rubbing their chins in agreement to this article.

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    Mute Cormac O' Keeffe
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    Apr 26th 2020, 9:07 AM

    One of the greatest achievements in economics in the last five decades has been the intellectual and practical triumph of delegating monetary authority to independent and conservative central banks. It needs to be tweaked in a number of ways, most importantly increasing inflation targets in times of crisis and taking a longer term average measure of inflation. However, going back to the situation where governments print money would lead to the time inconsistency problem again and would be a disaster. As people have said, there’s a very good reason why Germans fear inflation. Also, during hyperinflation it is the poorest and most vulnerable in society that suffer the most so there’s a welfare benefit to low inflation that shouldn’t be taken for granted.

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    Mute PV Nevin
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    Apr 26th 2020, 10:44 PM

    @Cormac O’ Keeffe:
    The Thatcherite revolution has brought humanity to a precipice. Yet there was no other way for our ruling class to go. Ably assisted by the top 10%. Logical for them. Death and want for the other 90%.

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    Mute FIE
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    Apr 26th 2020, 10:26 AM

    shes a fine half..not meaning to be sexist or anything

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    Mute Jack Inman
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    Apr 26th 2020, 12:49 PM

    Reading the arm chair economists on here is highly entertaining….especially the bit where everyone blames Germany.

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    Mute Sharp Elsi Mate
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    Apr 26th 2020, 3:09 PM

    Hard to believe she is 48 lads, she looks after herself

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    Mute PV Nevin
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    Apr 26th 2020, 10:40 PM

    Since the last financial crash the wealth of the top 10% has increased, by no small amount. Repeat, increased.

    That states have intervened in the pandemic to cover some costs of the working class, and the IMF is advocating a Keynesian investment policy, indicates nothing less than the mortal fear of the capitalist ruling class.
    Think about it.

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    Mute Roberto González
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    Apr 27th 2020, 12:37 AM

    To all the people saying Germany, Venezuela, runaway inflation, blah blah etc. How can printing money in a deflationary environment cause runaway inflation? This has to be done in the short term to stimulate demand. The money supply can be reduced again in the future. Its like giving a patient adrenaline. Not ideal for your system but needs must n all that. It’s either this or borrowing and Austerity. And I don’t think the proletariat will take that again.

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