KBC Bank Ireland CEO tells committee scale needed for banks to make return in Ireland

The chief executive of departing KBC Bank Ireland has said he would probably not advise anyone to set up a full scale retail bank in Ireland similar to that of KBC.

Ales Blazek said the main reason for this is that it requires extremely high investment and, because the market is small, it is difficult to get a return on that money.

"It requires ongoing investment and if you have that complexity of a universal bank you have to have a large number of customers to support that cost," he told the Joint Oireachtas Committee on Finance, Public Expenditure and Reform and Taoiseach.

"And if you don't have a large number of customers inevitably you end up in a case that your costs are not equal with your revenues appropriately and then your cost of capital goes up."

Mr Blazek, who took over as the boss of the Irish branch of the Belgian lender, said the bank has encountered quite substantial challenges in Ireland when it comes to having sufficient sustainable return on capital.

"It is driven by a number of factors," he said.

"It is the level of competition in the Irish market, it is also some of the aspects of the higher capital requirements for assets which we have to hold in Ireland."

"But also it is also a function of structural changes which are taking place in other markets and in Ireland as well."

Mr Blazek said the model of banking is evolving, with transformation being driven by technological changes and new forms of banking service which present challenges and opportunities in equal measure, including the ability to achieve reasonable and sustainable return on investment.

He also pointed to the cost of regulation as a factor.

"So with technology transition and regulatory cost you have two big costs you have to invest in and you need a critical mass of customers to pay for that," he stated.

"So if market is small you cannot sustain as many banks."

However, he also claimed that the Irish market is very competitive, not only from retail banks, but also from fintechs, payment providers and challenger banks.

"I understand that there are a few banking groups from the continent that are considering coming to Ireland and do certain products in Ireland as they feel there is an opportunity for them," he also claimed, without identifying them.

The KBC boss told the committee members that he wanted to reiterate KBC Bank Ireland's strong commitment and responsibility towards its customers as it exits.

He said it is the bank’s intention that any exit will be carried out in an orderly and responsible manner, fully respecting all the obligations it holds.

"We will ensure customers are provided with plenty of notice of any impact or changes to their accounts," he stated.

He said that while the deal to sell KBC Bank Ireland’s performing assets to Bank of Ireland is still awaiting regulatory approval, the bank is assuming it will be the beginning of the second quarter of next year before it knows the decision of the Competition and Consumer Protection Commission.

If it is granted, then the bank assumes the assets will be transferred in the second half of next year, he added.

Regarding the sale of the bank’s non-performing mortgages to funds managed by CarVal Investors, Mr Blazek said those borrowers would continue to be protected.

"So I have no reason to believe that the general customers would be in any worse position that they are under KBCI," he claimed.

Asked about the bank’s refusal to engage with the Financial Services Union over the plans to wind down the bank here, the CEO said the bank intends to continue to engage with its employee council.

The new KBC Bank Ireland boss apologised again for the bank’s conduct in relation to its treatment of tracker mortgage customers, adding the company has gone through substantial cultural change.

He said there are still some 27 outstanding customer claims before the courts as well as some before the Financial Services and Pensions Ombudsman.

"We are actually working very proactively to resolve those cases appropriately and in a comprehensive manner," he claimed.

He confirmed that KBC has set aside some additional reserves in relation to tracker mortgages and will continue to meet its obligations to its customers.

The banks has implemented the "stop the harm" principle in relation to its tracker customers and it remains in place he said.

"In respect of trackers we will not leave until we settle all of the obligations related to tracker mortgages which we have," he added.

"We will abide by all other obligations and we are going to fulfil our obligations to the last."