The news that KBC is considering an exit from the Irish market, coming so soon after Ulster Bank announced that it was shutting up shop after over 160 years here, is nothing short of a shock and a further body blow for consumers and competition in the banking sector.
KBC has announced the shock decision that it is in talks with Bank of Ireland (BOI) about the sale of its performing loan book, which if successful, would lead to the wind down of the bank here.
KBC has been operating in Ireland for over 40 years and several years ago repositioned itself as a 'full service' retail bank, offering current accounts and credit cards along with the mortgages for which it was traditionally known.
And although not nearly as big a lender as Ulster Bank, its exit will still have huge ramification across the entire banking sector and mean Ireland is left with only three main banks: AIB, BOI and PTSB, the latter of which has been the subject of its own rumours around closure in years gone by too.
In 2018, Mario Draghi, the former head of the European Central Bank (ECB) even once controversially referred to the Irish banking sector as a ‘quasi-monopoly’. Who knows how he would refer to it now...
Today’s news also complicates things for Ulster Bank customers, many of whom may have been thinking of moving some of their business to KBC.
I'm a KBC customer - should I be worried?
As was said to customers of Ulster Bank, there is no need to panic or take any action for now. The wind down of KBC is likely to take a few years, will be carried out in an orderly fashion, and mortgage and personal loan customers won’t see any changes to their repayment terms or interest rate. This is true regardless of whether loans are eventually sold to BOI, a new lender, or even a so-called vulture fund.
Anyone who has deposits of up to €100,000 with KBC will have these protected under the Deposit Guarantee Scheme. However 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. As it stands, BOI is in talks to take on KBC's savings book as well - but it's possible this part of the deal could fall through, meaning savings accounts would be closed and a cheque or bank draft issued for the amount customers had in savings.
If you have a current account with KBC it's unlikely this will be sold to BOI or moved to another provider - your account will eventually just be closed and you'll need to find a new home for your business and wages yourself.
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.
I'm due to get a mortgage with KBC - what should I do?
The message from KBC is that it's still very much open for business while the talks proceed. Including new business.
If you have an approval in principle from KBC then his will still be honoured. There is nothing for you to worry about.
KBC has some great mortgage rates so even if you're only at the start of your mortgage journey, you should still consider KBC for your loan. As mentioned already, any lender who takes over KBC's loans will have to honour the same terms and conditions.
KBC Ireland CEO, Peter Roebben, had this to say:
There is a long way to go and my main message to customers is that you don’t have to do anything, we are open for business and will continue to be open for business.
How much notice will I be given?
The talks with BOI could go on for months. But if KBC does decide to exit the market, customers must be given at least two months' notice before their accounts are closed.
How many people would be impacted?
At the end of 2020, KBC had around 320,000 customers, €5 billion in deposits and around a 13% share of the mortgage market.
I'm in arrears with KBC - is my loan being sold?
At the moment KBC is only in talks with BOI about loans that are 'performing' - in other words loans that are not heavily in arrears.
Loan in arrears or so-called 'non-performing loans' may be sold to another lender or bank in due course - or KBC might keep them and outsource the day-to-day management to another company.
Why is KBC leaving Ireland?
Bank of Scotland/Hallifax, Danske Bank (formerly National Irish Bank) and Rabobank (which owned ACC) have all pulled out of the Irish market over the past decade or so. And, of course, Anglo Irish Bank and Irish Nationwide Building Society both collapsed.
However it seems almost unbelievable that two such big lenders would seek to leave in such quick succession.
All banks internationally are struggling with weak profitability due to the low interest rate environment and many are seeking to retrench from international markets. So what's been happening in Ireland isn't unique.
However the strict rules in Ireland around home repossessions and the inability of banks here to take back ownership of a property in cases where the loan isn’t being repaid, and which affects the amount of capital banks need to hold, look increasingly to be a factor.
Ireland's small size also doesn't help - all banks have fixed costs, regulatory and otherwise, that they cannot avoid but these have an oversized burden on lenders here given the size of the market.
In short, Ireland is a risky place for lending and despite the higher rates and fees we're charged, isn't a very profitable market.
Still early days
It's important to note that KBC is currently just in talks with BOI, having entered into what's called a Memorandum of Understanding. It hasn't reached agreement on selling its loans or leaving Ireland just yet - but it does seem likely.
KBC has provided good competition in the mortgage market over recent years, has been at the forefront of a lot of innovation in the Irish banking sector, and has one of the best current accounts on offer. If it does decide to exit, it will be sorely missed.
Get in touch
Are you a KBC customer? How do you feel about today's news? Get in touch in the comments below...