Chief Executive's Review

The Irish economy continued to record rapid growth in 2018 with GDP increasing by an estimated 7%. This figure was boosted by the activities of a small number of multinationals; the conditions typically experienced across firms and households also improved significantly. Gains were driven by a pick-up in domestic spending and sustained strength in exports.

As a result, numbers at work increased strongly to surpass the pre-crisis peak. While concerns about Brexit did affect consumer and business thinking, sentiment remained broadly positive as incomes increased. The housing market remained robust as property price inflation and transaction levels gradually move towards sustainable levels. These developments were accompanied by a return to surplus in the public finances for the first time since 2007 and an associated fall in Government debt.

The financial performance of the Bank for 2018 against this backdrop was satisfactory. KBC reported an operating profit of €76 million before tax and impairment, and a profit after tax of €162 million.

The Bank’s capital base has remained solid with a fully-loaded CET 1 Capital Ratio of 17.7% as at 31 December 2018. In August 2018 KBC reached an agreement with Goldman Sachs to sell a loan portfolio of circa €1.9 billion; comprised of non-performing legacy corporate and residential buy-to-let mortgage loans.

As a result of this transaction, which closed in November, and the continuing efforts of the Bank in resolving distressed loans, NPL levels in KBC Bank Ireland reduced by approximately €2.3 billion, resulting in the NPL ratio reducing by c. 14% points to around 23% at the end of 2018.

The transaction itself resulted in a net P&L impact of +€17 million (including all related costs) and a release of capital of approximately €0.4 billion at KBC Group.  2018 was another strong year for KBC as we opened 79,000 new customer accounts.

We now have over 286,000 customers who have chosen KBC as their banking provider and we are grateful for their business.
Customer centric innovation is at the core of everything we are doing in KBC Ireland and it is reassuring to see that our investment and dedication to innovation is resonating with our existing and new customers.  At KBC we are working to change the way the people of Ireland bank by providing instant and accessible financial products and services.

Customer centricity however also means that through our policies, procedures, charters and behaviours - we will always act in the customer’s best interests in our relationships with them.

Over the last twelve months, we have maintained our focus on growing and improving our digital capability to make banking easier and more accessible for our customers and the wider market.  2018 saw KBC launch a new version of its innovative app, which creates an unrivalled banking experience with a range of market first digital capabilities.

With KBC’s instant Credit Card, customers can apply for and receive a digital credit card within one hour. Our Lost/Stolen feature is unique to the Irish market and allows customers to block their card, and apply for and receive an instant digital card replacement on our app. The new functionality introduced last year adds to our unique digital experience and capability as we are the only bank in Ireland to offer digital wallets from four of the world’s leading technology companies; Apple Pay™, Google Pay™, FitBit Pay™ and Garmin Pay™.
During the year, we strengthened our value proposition for customers across the Bank’s growing product range. KBC continues to offer some of the most competitive rates for new mortgages, with the introduction of new 1, 2, 3 and 5 year fixed rates for first time buyers, movers and switchers.

Overall, new mortgage lending for 2018 of €942 million was up 6% on 2017 as home buyers and switchers responded to the offers of better long-term value. To further support mortgage switching, KBC continues to offer a €3,000 contribution towards the costs of switching a mortgage and 25% 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. Our personal loan offer continued to lead the market in 2018 and this, combined with our broad range of insurance products spanning car, home, life and gadgets has  contributed  significantly  to growth in customer numbers.

We expanded our offering further in 2018 with the launch of KBC Business Banking and a product set which has been co-designed with input from the professional sector. The new proposition offers specialised support and a suite of products for businesses including business current account, business loans, business deposits, professional finance and business credit cards. The result is a full-service business banking service with a dedicated KBC Business Partner and Business Support Team, tailored products and a full digital banking platform, including mobile.

KBC has maintained progress in resolving arrears cases in its retail mortgage and corporate/SME loan book in 2018, and has now offered a range of solutions to circa 90% of customers in financial difficulty.

The Bank continues to engage with customers experiencing financial difficulty through its dedicated support unit and teams as well as approved independent third parties. KBC encourages any customer who is experiencing financial distress to engage with either the Bank or approved independent third parties to understand the options available to them in resolving their circumstances.

KBC made a significant impact and contribution across its Sustainability domains of Entrepreneurship, Financial Literacy, Environmental Responsibility and Health & Wellbeing in 2018. The Sustainability Framework, built through close collaboration with our colleagues across the KBC Group, recognizes that as a bank serving retail consumers  and  micro-SMEs,   we have an important role to play in society in addressing sustainable development challenges.

Under the umbrella theme of Financial Literacy, we supported Junior Achievement Ireland with the ‘Make Maths Matter’ initiative, a programme that supports financial literacy and STEM education in  primary schools.
KBC has continued its partnership with the Alzheimer’s Society of Ireland as its dedicated Charity for 2018 and with the help of our employees, we fundraised over €130,000 to support this worthy cause. We were further able to support the Society by working with KBC business partners to facilitate further fundraising by providing them with contactless payment terminals. These terminals will make it easier for the ASI to accept donations in the years to come.

As we grow our retail bank in Ireland, we are also focusing on creating a greener, more sustainable business. KBC are proud to be a member of the Business in the Community Ireland Leaders’ Group. In 2018, we were delighted to be recertified to the Business Working Responsibly Mark, as we extended the scope of the certification to include all 16 of our hubs.

The BITC Leaders’ Group focuses on business collaboration to bring about long term change on issues facing Irish business. We actively participate in the Group and I am delighted to co-chair the Worker of the Future sub-Group. Under Environmental Responsibility, we have signed up to the BITC Low Carbon pledge and are committed to supporting the transition to the low carbon economy.

The industry-wide Tracker Mortgage Examination remained a top priority for the Bank over the course of 2018 and we will have completed the full redress and compensation process for all customers identified as impacted by 31 March 2019. We acknowledge that this has been very difficult for customers who have been negatively impacted by the Bank’s errors and mistakes and we reiterate our apology to all impacted customers.

We recognise that a great deal of work remains to be done to improve the reputation of – and trust in – the retail banking sector in Ireland. We are committed to working towards further improvement in the culture of banking in Ireland. We are one of the founding members of the Irish Banking Culture Board (IBCB) and we will work hard to improve standards and behaviour. The Irish banking industry must always focus on the best interests of our customers, our staff and on ensuring there is a sustainable banking sector for everyone that relies upon it.

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. John Malone for the role he has played within the Bank as an Independent Non-Executive Director and welcome our new Non-Executive Directors who joined throughout 2018.
I would also like to thank Mr. Des McCarthy, former Executive Director and CFO who left the Bank in December after 23 years of service to the Bank here in Ireland  and to KBC Group, for his commitment over the years in managing and building the Bank here in Ireland.

I would like to welcome both Mr. Tom De Witte, Chief Operations Officer, and Mr. Frank Jansen, as Executive Director and Chief Financial Officer, as new members of the Executive Management Team of KBC Bank Ireland.

Wim Verbraeken
Chief Executive
March 2019