KBC Ireland’s €5bn parent loans could help Belgian bank to stay

Belgian-based KBC Group’s €5 billion funding line to its Irish unit is likely to help persuade the group to remain in the Republic as it announces the result of a strategic review in two weeks’ time, according to analysts at Deutsche Bank.

KBC Group, in Ireland since 1978, is considering whether to develop the Dublin-based unit, which cost €1.4 billion to bail out during the financial crisis, into a bank-insurance company, grow the lender organically, or sell the business entirely. The review has been underway for at least a year.

Deutsche Bank analysts said in a note published on Monday they expect KBC Group in Brussels to maintain the “status quo”, albeit with a plan to grow organically and build up the bank-insurance model it has in its core markets.

"We note that the €5 billion of intra-group funding from KBC to its Irish unit [is] likely to be a hurdle for a sale or exit of the business," said the Deutsche Bank analysts, including Flora Benhakoun, adding that KBC Group told analysts earlier this month that it has no merger and acquisition deals on the table at the moment.

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A €5 billion funding line equates to about 40 per cent of KBC Bank Ireland’s entire liabilities at the end of 2015, according to the company’s most recent annual report.

Free up €50bn

The Financial Services Union in Dublin wrote to the chief executive of KBC Bank Ireland, Wim Verbraeken, on January 9th, saying there was "significant concern" among the bank's staff in Ireland that its parent could sell the business here. However, the group has insisted, as a publicly quoted company, that it could only inform staff at the same time as other stakeholders on the outcome of the review when it publishes its financial results on February 9th.

Mr Verbraeken told The Irish Times in November, as KBC Bank Ireland posed a €44.4 million net profit for the fourth quarter, that it is preparing to start paying a dividend this year to its Belgian parent.

KBC Group said at the time it expected to free up as much as €50 billion in 2016 of provisions previously set aside to cover bad debts, as the economy improves and the level of soured loans declines. The forecast marked a turnaround from its previous expectation that it would have to set aside a further €40 million of fresh provisions for the year.