IIB targets major slice of home loan pie

From a standing start a decade ago, Belgian-owned IIB Bank now holds 12 per cent of the Irish mortgage market.

According to Mr Brían McManus, chief executive of IIB Home Loans, it advanced 2 billion to 10,000 borrowers last year. Its total book now amounts to 5.5 billion and is populated by 40,000 clients. Broadly speaking, he says, one in every 12 mortgages taken out in this country is with IIB.

In retrospect, it looks like the bank's timing could not have been better. It began lending to home buyers 10 years ago, just as the Irish economy was turning the corner that would lead to the Celtic Tiger and a property boom that would see demand for new homes propelled to 60,000 units a year.

There was some irony in that, because IIB did the opposite in the UK, entering the market just after the boom of the 1980s had peaked and high interest rates were reining in borrowers. However, it still wanted to diversify its business in the Republic, and took the lessons it had learned at the distribution front in Britain back here.

"We imported the idea back into Ireland of a mortgage business based almost exclusively on distributing through mortgage intermediaries," Mr McManus explains.

"The mortgage intermediary was quite a small distribution channel at that time so what we did was build a marketing approach, drafted in hard copy, called the 'business builder'. That was the marketing material for all the mortgage intermediaries and we promoted the mortgage intermediary as an important source of mortgages here in this market. So we had a business with only one branch."

As well as the obvious fact that using intermediaries eliminates the need for a branch network to service the business, Mr McManus believes that they serve other purposes as well.

"After September 11th, I spoke with some of my colleagues in other banks, and they said the market was very quiet," he says. "Our business never missed a beat.

The mortgage intermediary is out there doing business all the time; he earns a commission on the business he does, and therefore the amount of money he earns is directly proportionate to the amount of effort he puts into it."

Along with other advisers, mortgage intermediaries have had their image tarnished somewhat (although this does not seem to have deterred consumers). Mr McManus believes that this is unwarranted. He argues that they do valuable legwork on their clients' behalf. At the end of it all, they present potential borrowers with what he maintains are very transparent offers that take the sweat out of decision-making.

Not surprisingly, IIB's home loans business accelerated rapidly over the past five years.

"In 1998, our total level of lending was €1 billion, now it's €5.5 billion," he says.

"The market has been very strong and we have also been gaining market share over the years.

"Having said that, the mortgage intermediary business has also grown very strongly over the last five years. They now account for about €5 billion of new mortgages in Ireland every year, out of a total of about €13 billion or €14 billion."

Equally unsurprising is the fact that IIB intends to continue growing its mortgage business "very, very hard". It is aiming to take a 15 per cent share of the cake in the short term, which Mr McManus defines as a few years.

"We've decided that scale is one of the biggest issues behind a successful business and we will be working very hard," he says.

But how much more scope is there? Well, quite a lot it would seem.

"The total level of mortgages outstanding in this market at the moment is something close to €60 billion," he points out. "There's about €50 billion of homes in which there is no debt at all, so the mortgage market is very substantial."

Alongside mortgages, IIB also loans its customers cash for other purposes at the 3.45 per cent variable rate. The repayments for these are rolled in with those that service the mortgage. In addition, half its business is made up of re-mortgage or refinancing, a market that is reckoned to be poised for strong growth in this country.

Either way, valuations and interest rates remain key elements of this business.

Mr McManus says IIB is forecasting overall house price growth in the high single-digit figures, but he concedes that, along with most other institutions, IIB has tended to get it wrong, or at least under-estimated the rate at which the market has expanded.

One side of the coin is the fact that employment growth here has been strong for the best part of a decade. The Republic's workforce grew by a further 30,000 last year. The other side is whether or not the European Central Bank (ECB) will increase interest rates.

"It's very hard to see interest rates rising in the near term, let alone rising significantly, so our call is that the market is still going to remain reasonably buoyant over the next while," Mr McManus says. "Then you have the SSIAs [Special Savings Investment Accounts\] coming on stream, which represent about 25 per cent of the GNP [gross national product\] of this country. Those will impact also on the demand for housing."

The one potential blot on the landscape could be the question of affordability. Mr McManus points out that the market could reach the point where young people feel that they cannot afford to buy. However, he says that the supply of new housing has continued to come on stream, and this could maintain equilibrium in the market.

IIB is part of Belgian-controlled KBC. In Ireland, this includes fund manager KBC Asset Management and KBC Finance Ireland, an International Financial Services Centre (IFSC) company, which is involved in funding infrastructure projects outside this country.

Mr Paddy McEvoy chairs IIB and its chief executive is Mr Ted Marah.

"Most of the directors within IIB have worked together for the last 20 years, and I would regard both of those guys as having been good mentors to me," he says.

The bank has a track record of increasing profits every single year since the early 1970s. Its other businesses are in treasury, foreign exchange, corporate and small business lending, and private banking.

Mr McManus is interested in literature, and Ulysses author James Joyce in particular. He even manages to quote playwright Harold Pinter on the Irish writer.

He made a small investment in the film based on the book Bloom, which has not spent as much time as he would have liked on release in this country.

He qualified with PricewaterhouseCoopers in the 1970s but moved to IIB soon after, drawn, he says, by the opportunity to get involved in making deals.

Displaying a most un-banker-like taste for risk outside his career, he enjoys long-distance sailing, and will be heading for the coast of South America next autumn. He is married with two children.