You’re probably sick of all the press releases and advertising from KBC Ireland boasting about its recent decision to invest €125m in its Irish operations. And all the nauseating politicians, predictably demonstrating world-class goal-hanging by welcoming the investment. And just how many jobs will such investment generate in Ireland. You must be sick of hearing all about it.
That’s because there hasn’t been any press release, or advertising for what you might have expected would be some pretty good news. The Irish Independent reports today “speaking to the Irish Independent, a company [KBC] spokesman said the cash [€125m invested on 27th March 2013] was being used to fund expansion and was not a shoring up of the business”
We know that KBC has recently acquired a premises for a new branch in Cork. But, €125m for expansion? KBC’s total operating costs in Ireland 2012 were €75m. And remember the €125m has already been “invested” in one hit on 27th March 2013 so this isn’t an investment spread over years.
In 2011 KBC Ireland booked €525m in impairment provisions, in 2012 this rose to €547m. So €125m just looks like the quarterly replacement of capital after booking more losses on its loans – in August 2012 KBC invested another, completely separate, €125m in its Irish operation “to ensure the stability in the bank’s regulatory capitalization”, in other words to keep the bank solvent or at least acceptably solvent in the eyes of the Central Bank of Ireland. But in respect of the March 2013 €125m, KBC says no – it “was not a shoring up of the business”. We hear today that KBC’s Core Tier 1 capital at 31st December 2012 was an impressive “in excess of 11%”, compared with EU standard of half that.
The Central Bank of Ireland does not comment on the capital position of individual banks. KBC has an unusual operation in Ireland. It has €14bn of lending to Irish households and businesses and €3bn in deposits with most of the bank’s funding coming from the parent company in Belgium. It had capital of just €1bn in December 2012 compared with assets of €17bn. Irish depositors are covered by a government guarantee for the first €100,000 of individual deposits and that guarantee is backed up by a €400m Deposit Guarantee Scheme fund held at the Central Bank of Ireland, though in the case of all of that being used, the Central Bank can impose additional levies on banks, like with the insurance industry.
There is no suggestion here that KBC faces imminent threat and it should be said the parent company has expressed support in the Irish unit, but with impairments running at €500-600m per annum and growing, with three Belgians recently parachuted onto the Irish board, you would at least have to consider the future of the company in Ireland.