Chief Executive's Review

Irish economic growth was again strong in 2017 as the recovery in domestic spending gained momentum and global conditions supported exports and investment. A GDP growth rate estimated to be in excess of 6% likely overstated the pace of gains felt by most businesses and households but across a wide range of metrics, there was a palpable improvement in economic conditions.

Numbers of people at work rose strongly resulting in a further decline in the unemployment rate as well as a pick-up in net immigration. Firmer job market conditions supported growth in consumer spending and underpinned increased housing demand which translated into strong growth in new lending to households and a broadly stable level of deposits.

The sustained upturn in the Irish economy meant the Government finances moved close to zero deficit and progress in this metric and broader economic circumstances further enhanced financial markets’ confidence in Ireland. These improvements in the economic environment provided a positive backdrop for KBC Bank Ireland plc (the ‘Bank’ or ‘KBC’) in 2017.
Excluding the exceptional provision of €115.9m recognised in respect of the Tracker Mortgage Examination the Bank reported an operating profit of €112m.

The Net Profit after Impairments and Tax was €182.7m due in part to the release of loan loss provisions reflecting a favourable evolution in our legacy distressed loan portfolios, strong house price growth and the overall continued improved economic conditions. The Bank’s fully loaded CET 1 Capital Ratio of 14.0% at 31 December 2017 implies that the capital base has remained solid.
During the year, we strengthened our value proposition for customers across the Bank’s growing product range. KBC continues to offer some of the best variable rates for new mortgage customers and the launch of a new market-leading 10-year fixed mortgage offering provides even greater value and certainty for new and existing customers over the long term.

Overall, new mortgage lending for 2017 of €888m was up 45% on new mortgage lending for 2016 as the Bank continued to attract first-time buyers, movers and switchers. To further support consumer switching, KBC continues to offer a €3,000 contribution towards the costs of switching a mortgage and 50% off premiums for KBC Home Insurance in year one.
KBC’s Current Account remains at the centre of the Bank’s offering, with its enhanced digital features, as well as fee-free banking with KBC’s Extra Current Account, a priority for consumers looking for an alternative banking provider.

In a new development and to attract a new generation of customers to the Bank, KBC also launched a new teen Current Account for younger customers aged 13-18. Our personal loan offer continued to lead the market in 2017 and this combined with our broad range of insurance products spanning car, home, life and gadget has contributed significantly to customer growth.
Our range of products also received external recognition over 2017. At the consumer website bonkers.ie awards; KBC were recognised for ‘Best Value Current Account’, ‘Best Value First-time Buyer Mortgage’, and ‘Best Value Switcher Mortgage’.

We also received recognition from industry colleagues as the Association of Expert Mortgage Advisors (AEMA) awarded KBC ‘Best Suite of Products’ and the ‘Best Sales Support Team’. This external recognition from consumers and colleagues is very important to us as we continue to grow our franchise in Ireland.
In February of this year the Bank’s parent, KBC Group announced its commitment to Ireland and its positioning as a ‘Digital First’ retail bank and digital frontrunner for the KBC Group.

Over the last twelve months, we have been growing our capability in this area with the establishment of a dedicated ‘digital first’ innovation unit in Ireland that allows us to develop and bring innovation to market quicker than our competitors.

2017 saw us complete the full suite of Android Pay, Apple Pay and Fitbit Pay – all of which allows customers use their mobile devices to now pay at the point of sale.

In September we launched our new mobile on-boarding app that allows customers join KBC and avail of a current account and digital card in 5 easy steps on their mobile phone in just 5 minutes. This was a market first within Ireland and the results in customer acquisition so far have been very positive.
These developments showcase the impact of KBC’s Innovation Hub, where digital solutions are being created and tested for customers in Ireland and for rollout across other KBC markets.

The open architecture of KBC’s core banking system has enabled the Bank to collaborate with leading fintech companies to fulfil its role as the digital frontrunner for KBC Group. We know too that customers are now embracing digital more than ever as they bank digitally with us.

  • 1 in every 2 Current Accounts opened in 2017 was through digital channels
  • 1 in every 3 active debit and credit card customers use Android Pay and Apple Pay
  • 1 in every 5 of all KBC Extra Current Accounts in 2017 were opened through our new mobile app

Along with digital improvements made for customers, we also extended our reach and accessibility. We opened a new retail hub in Blanchardstown shopping centre which opens 7 days a week.

Customers can also now contact us through our contact centre 24/7 for both sales and service queries. These are just some of the differentiators we believe consumers want from a bank today and in the future.
The Bank continues to engage with customers experiencing financial difficulty through its dedicated support unit as well as established independent third parties such as the Abhaile Scheme (through MABS), Money Advice and Budgeting Service (MABS), the Irish Mortgage Holders Organisation (IMHO) and Stepchange Debt Charity Ireland.

Finding the most appropriate resolution for those that are experiencing difficulty remains the goal and this proactive engagement with customers helps us achieve that aim.

Overall KBC has continued making progress in resolving arrears cases in its retail mortgage and corporate/SME loan book throughout 2017, and has proposed a range of solutions to more than 95% of customers in financial difficulty.
KBC made a significant impact and contribution across its Sustainability domains of Entrepreneurship,
Financial Literacy, Environmental Responsibility and Health & Wellbeing in 2017. Under the umbrella theme of Entrepreneurship KBC supported Enactus and 3rd level students in their programmes on social entrepreneurship and became a primary sponsor of the Irish Early Career Awards that recognise young and emerging talent across Ireland.

We launched the ‘KBC’s of Banking’ and our ’Home Experience’ events, both of which aim to improve the financial literacy of consumers and customers alike and we also became the primary partner for ‘Wellfest’ – Irelands only Health and Wellness festival.

We recognise that wellbeing is very important to both our employees and customers and we are delighted to be primary sponsor once again of the festival in 2018. Our Bright Ideas programme this year contributed over €200,000 to local communities and causes.

As a new initiative in 2017 we supported ‘Bright Ideas for Business’ which helped ten new and emerging small businesses bring their ideas and businesses to the next stage of growth and development.

KBC was delighted to partner with the Alzheimer’s Society of Ireland as its dedicated Charity for 2017. This fantastic cause inspired many of our employees to participate in one of our most successful fundraising campaigns to date – The KBC Hub2Hub challenge – where over 60 employees and volunteers ran a non-stop relay over 600km across Ireland linking up with each our Hubs in their communities.

This inspirational initiative helped us fundraise over €130,000 to support this worthwhile cause. We were further able to support the Society by working with KBC business partners to facilitate further fundraising by providing them with contactless terminals. These terminals make it easier for the ASI to accept donations in the years to come.
2017 was a significant year for KBC in Ireland as it became a core market within the KBC Group. We also reached a new milestone with over 250,000 customers now banking with KBC, with the Bank adding over 75,000 new customer accounts in 2017.

KBC Group’s Investor Visit was hosted by KBC Bank Ireland in Dublin in June where we shared updates on the Group’s strategy, capital deployment plan and financial guidance to 2020.Digital transformation of banking was a key theme and will continue to be a focus in our Digital First Challenger Strategy here in Ireland.

Over the year we have accelerated many of our deliverables for consumers in this regard. Our ‘always-on 24/7 accessibility’ and innovative digital propositions are testament to that strategy.
The industry-wide Tracker Mortgage Examination has been a top priority for the Bank over the course of 2017. We acknowledge that this has been very difficult for customers who have been impacted by the Bank’s errors and mistakes.

These errors were wrong and we sincerely apologise for them. We cannot undo the past but we can provide remediation and learn from mistakes. This matter remains a priority for the Bank for 2018, thus ensuring that all customers that have been impacted will be fully redressed and compensated.
I would like to thank Mr. Luc Popelier as Chairman of the Bank for his support and the commitment that he and KBC Group give to KBC Bank Ireland. Their ongoing support and continued belief in Ireland as a core market has been invaluable.

I would like to acknowledge and thank Mr. Gary Britton for the role he has played within the Bank as Non-Executive Director. I would also like to welcome Mr. Barry D’Arcy to the Executive Management Team of KBC Bank Ireland. Mr. D’Arcy was appointed as Chief Risk Officer in May of this year having previously served as Head of the Finance function for the Bank.

I would also like to thank all of my colleagues for their energy, dedication and commitment over the last 12 months. 2017 was a landmark year for KBC in Ireland. I would like to thank the management team for their contribution over the year and I look forward to working with them in the year ahead.
Wim Verbraeken
Chief Executive
March 2018