So, another bank bites the dust then?
Well, sort of. KBC has announced its intention quit the Republic after more than four decades of doing business here and is already in advanced talks to sell its performing loans and deposits to Bank of Ireland. It is also "reviewing options to divest" its non-performing loans and will most likely sell them to an overseas distressed debt fund.
Is it a done deal?
No. Bank of Ireland and KBC have reached what is known as a "memorandum of understaning" but no deal has been done yet, although it does seem likely given the willingness of both sides to get it over the line.
KBC is not the first bank to up sticks in recent times?
No, the move comes just eight weeks after UK lender NatWest put the Ulster Bank into an orderly wind down saying it had struggled to make an acceptable return in a low interest-rate environment and also an environment where banks have to hold much higher levels of capital against loans than the average European lender.
Is that to blame for the KBC move as well?
Well, certainly, the nature of the market here is not overly attractive to banks. In its statement on Friday morning, it said it was making the move because of a "challenging operational context". The Minister for Finance Paschal Donohoe said that the KBC exit plan was part of a common thread which sees big multi-national financial institutions leaving small markets such as Ireland to focus their endeavours on larger markets where they can make more money.
Was the move expected?
No, not really. While the Ulster Bank move had been widely flagged for a considerable time, the KBC’s decision has been described by multiple sources using works like surprise, shock and bombshell. KBC and Bank of Ireland have been in discussions since February. They are believed to have been initiated by Bank of Ireland. The Minister for Finance was aware from earlier this week that a deal was coming down the tracks but he was only officially informed about 9pm on Thursday evening.
How big is KBC?
It is pretty big. It has been in Ireland since 1978 and has around 320,000 customers here. It has €8.9 billion of performing loans and €1.4 billion of impaired loans, mainly mortgages and currently has a share of about 12.6 per cent of the Irish mortgage market. It also has around €5 billion in deposits and employs around 1,400 people.
What difference will the bank’s departure make to me?
Well, in the very short term, almost none, even if you are a customer . Banks do not tend to leave markets fast so you won't have to do anything in the days and weeks ahead. It typically takes years for a process like this to play out. It may be a different story in the longer term however. The move - if it happens - will reduce the number of retail banks in the Republic to just three, down from five at the start of the year. At the height of the Celtic Tiger the number of banks competing for our money was closer to 10.
That doesn’t sound good?
No, it isn’t really A lack of competition in the sector will mean that the remaining banks won’t have to work as hard for our business.
I am about to drawdown a mortgage with KBC, am I snookered?
Absolutely not. There are a couple of points worth making or reiterating. First no deal is done and KBC could end up staying here. Secondly, whatever deal you have now will have to be honoured by whoever takes over the loan book.
I have approval in principal, will that be honoured?
Yes, it will.
I am only starting to look for a mortgage, I suppose I can forget about KBC?
Again, absolutely not. The bank has some of the best value mortgage rates on the Irish market and is still looking for new business and it is certainly worth considering when looking for a mortgage. At the risk of repeating ourselves, any lender who takes over KBC’s loans will have to honour the same terms and conditions.
What about my savings?
Anyone who has deposits of up to €100,000 with KBC will have these protected under the Deposit Guarantee Scheme but according to Darragh Cassidy of price comparison site Bonkers.ie "finding a new home for your savings might be tricky seeing as banks are awash with deposits right now and don't want any more". He points out that if you have a current account with KBC "it's unlikely this will be sold to another provider - your account will eventually be closed and you'll need to find new home for your business yourself".
And will that be easy?
Well, Cassidy says that even after Ulster Bank and KBC’s planned exits, “there are eight other current account providers in Ireland, several credit card providers and eight other mortgage lenders. So choice and better value, although dwindling, is still out there if consumers are prepared to take the time to compare the market and do some research”.
