KBC plans long campaign to restore its profitability

Wim Verbraeken spent 14 years with Belgium’s military, including two years as a Nato troop commander in Germany before the Berlin Wall came down.

Yet the KBC Bank Ireland chief executive arguably faces a tougher engagement here, sorting out the bank's legacy loan issues while also plotting a strategy towards becoming a challenger in current accounts.

Verbraeken is on a second tour of duty with KBC in Ireland, having worked for the group at its IFSC operation in Dublin between 1996 and 2000. After a posting in Moscow to manage the sale of Absolut Bank, as per an agreement with the European Commission relating to KBC's state aid, Verbraeken arrived back in Ireland last summer as finance and operations director before succeeding John Reynolds as CEO in November.

Few would have envied him the task. KBC’s Irish operation made a loss last year of €864 million, almost three times the loss recorded in 2012. Its impairment charge doubled to €1.05 billion and the bank said it would be 2016 before it returned to profitability.

The branch openings, the 200 new hires, and a 50 per cent rise in retail deposits barely merited a mention by comparison.

Verbraeken said the sharp rise in impairments was a pre-emptive strike by its Belgian parent group to try and draw a line once and for all under the bad loans from the property bubble years in advance of a series of stress tests this year by the European Central Bank.

Why didn’t KBC simply follow the lead of international rivals and quit the Irish market?

“KBC has always maintained a faith in Ireland and it’s not only about resolving the legacy issues around the corporate and home loan books but also the opportunity that is here,” Verbraeken says from across a table in one of the bright meeting rooms at its new Baggot Street branch in Dublin.

“The sense we got from research and customer feedback was that customers are looking for alternatives. KBC felt that we were well placed to provide that.”

He said the problem loans on its books are “historic” and will be dealt with over time. “Regardless of what decisions we take about the future, we have to deal with that. We’re not mixing that up with the opportunity we see here in the [personal banking] market.”

KBC in Ireland has 22,513 mortgages in arrears or some form of restructure. That’s from a total of 64,000 owner-occupied and buy-to-let mortgage accounts.

Verbraeken says it has taken provisions of €1.7 billion on a mortgage book of €12.2 billion, which he argues is the highest level, relatively speaking, of any bank in Ireland.

It has also appointed about 1,000 rent receivers to buy-to-let properties and its SME arrears amount to around €350 million from a book of €1.1 billion.

Verbraeken says about 13,000 solutions have been offered to mortgage arrears customers to date, with roughly 8,000 deals concluded.

Somewhere between 20 and 25 per cent of the 13,000 will probably involve an “exit” by way of voluntary surrender or repossession, he says. Do the maths and that’s between 2,600 and 3,250 loans.

Verbraeken emphasises that exits will only be done as a “last resort”.

“We want to keep owners in their homes if at all possible,” he explains. “Sometimes, we have to conclude that no sustainable solution is available and we work towards an exit on a consensual basis.”

To date, KBC has repossessed just 20 properties on foot of loan arrears while more than 100 have been surrendered voluntarily.

About 200 of KBC's 800 staff in Ireland are working through its arrears issues, which gives some idea of the scale of the problem for the bank. In addition, the bank recently agreed a six-month pilot with the Irish Mortgage Holders Organisation to provide an advisory channel that KBC's arrears customers can use.

Alternative channel
"This is essentially an alternative channel for customers who are not comfortable contacting us directly," Verbraeken says.

Since the announcement, the IMHO has sent out 360 information packs to KBC customers, of which 50 have been returned. “We’re quite encouraged by the response. One of the issues we’re working on is engagement with the customer and if this channel helps us to do that then great.”

However, Verbraeken says customers using the IMHO channel will still have to go through the same processes at KBC. “There is not a separate process for these cases. We look at the merits of every case and it’s not because it comes through that organisation that we look at the merits of the case differently. The merits are what they are.”

The IMHO has recently trumpeted substantial write-offs secured on behalf of AIB arrears customers, via a similar scheme with that bank. Verbraeken was keen to dampen expectations that KBC would be offering substantial write-offs.

“Debt forgiveness is not an integral part of any of our solutions. Our basic principal is that it [the loan] has to be repaid, if it is sustainable.”

Encouragingly, there is a growth piece to the KBC story in Ireland. It plans to open five branches here this year, starting with outlets in Grand Canal Square and a former Danske branch close to Stillorgan Shopping Centre.

This will double the size of the network to 10. Retail deposits are up to €3 billion and it has launched a competitive current account product that is bringing in “thousands of new customers each month”.

“We’re happy with the response ... because we started from zero.”

A credit card with Mastercard is next to be launched and personal loans are also in the pipeline. Verbraeken says the plan is to remain "light of foot". The new outlets are more hubs than traditional bank branches and KBC won't be replicating the bricks-and-mortar presence of Bank of Ireland or AIB in Ireland.

"Our customers expect us to be visible in the main street ... but we will not replicate the business model of our competitors, which is essentially last century business practice. Our strategy is not to have a branch that will be idle for parts of the day."

Current account promotion
To promote its current accounts, KBC availed of a clause in Bank of Ireland's restructuring deal with the European Commission to direct mail 350,000 of Richie Boucher's current account customers with its marketing material.

It cost about €200,000 and Verbraeken says there has already been a spike in calls to its contact centres since the mailing began last month.

“This was an opportunity for us to reach out to Bank of Ireland customers but everything depends on the response because we don’t have the personal details of the customers. We don’t even know which customers receive this mailing. It will really depend on the customers making contact with us.”

How many customers does he hope to pinch?

“This is a campaign that has never happened in Ireland before. It’s a first. It’s very early to put numbers on it. I’m not sharing projections. We’re quite hopeful it will resonate with customers of Bank of Ireland.”

KBC has a near 10 per cent share of mortgages and 3 per cent of deposits. What share is Verbraeken targeting for current accounts?

“You could say that we would like to gravitate towards something like 10 per cent market share across the board, which would make us very profitable given our branch network and cost basis. We can scale our operation very easily so we don’t need 25 per cent market share to be profitable.”

How long will it take?

“We have quite realistic targets because we want to be sustainably profitable. We don’t want fast growth. We’re here for many, many years. We have plans set out to 2020. I’m not going to say when we expect to hit 10 per cent. It’s not a fetish for us. It could take a number of years.”

Minister for Finance Michael Noonan recently outlined his desire for a third banking force to emerge in Ireland to challenge AIB and Bank of Ireland, while Royal Bank of Scotland has hired Morgan Stanley to assess consolidation opportunities for Ulster Bank in the Republic.

Verbraeken is coy about KBC’s interest in a third banking force or any possible deal with Ulster Bank.

“We’re following the story with great interest,” he says. “We will compete whatever the ultimate outcome. We’re not making any comments. We can’t rule anything in and can’t rule anything out either.”

Has there been discussions between KBC and the minister or the department of finance on the third banking force, or any contact with Morgan Stanley in relation to Ulster Bank? “I cannot comment on any possible discussions or whether they take place or not. KBC has a very strict rule not to comment on any transactions that might or might not be happening.”

Verbraeken was born in the small city of Herentals in the Belgian province of Antwerp. He joined the military on leaving school – national service was compulsory at the time – taking an engineering degree as an officer cadet. He also completed an MBA while in uniform before departing for a career in the private sector.

“At the age of 25, I was commanding 200 people as a troop commander in Germany,” he says. “I have only fond memories. It prepares you for situations of stress. You get a sense of duty, of what is right. The mission and your team come first. It’s not about the pursuit of some personal glory. This is imprinted on you as a young adult and sticks with you.”

He joined KBC on leaving the army and has spent 22 years with the bank, including stints with his French wife in New York, Hong Kong and Russia. Verbraeken also speaks five languages – English, French, Dutch, German and Russian. His English is excellent.

At 53, might Ireland be the last stop on the Verbraeken world tour?

“Who knows?” he says. “I hope to be here for many years. Honestly, there’s a lot of projects and I’m keen to see them completed. To see the results of that, you have to be here for a number of years and I plan to do that.”

Can he really return KBC’s Irish business to profit within two years?

“Yes. That is including the legacy. We are not splitting things up into a good bank-bad bank as some do because we believe that a lot of the customers who are today perhaps struggling can ultimately make a transition and make attractive customers for our products.

“Contrary to some other institutions, we are here for the long term. We’re growing, we’re ambitious and the support we get from KBC group is very important. Some people think that KBC is a start-up because we only have five branches but we date back over 40 years [it was previously IIB Bank] and have a very big financial player supporting us.

"They go about things very methodically. They have done it in other countries and are very confident that they can realise their ambitions here."


CV: Wim Verbraeken
Name: Wim Verbraeken

Job: Chief executive KBC Bank Ireland

Age: 53

Family: Married with two children

Lives: Dún Laoghaire

Hobbies: Enjoys watching sport

Something we might expect: "Given that I've chosen an expat career, I'm an avid traveller. I spend my vacations in the
regions where I work. I'm not a person
who at every occasion would try to fly
home and spend time in Belgium. I'm quite curious to get to know the culture in the region."

Something that might surprise: He spent 14 years in the Belgian military, including a stint with Nato as a troop commander in Cologne, Germany between 1984 and 1986.