Mr. Wim Verbraeken:

We thank the Chairman and the members of the committee for the invitation and opportunity to represent KBC Bank Ireland here today. I would like to introduce the delegation from the bank. I am accompanied by two senior members of the bank’s management team, Ms Dara Deering, executive director retail banking, and Mr Barry D'Arcy, chief risk officer. The committee will have received our written responses to the questionnaire. With the agreement of the committee, I will proceed to read my opening statement, following which we will respond to any specific questions the committee would like to ask.

In our appearance before this committee on 28 September 2017, we were not in a position to provide the committee with the number of impacted mortgage accounts because we had not concluded our review and engagements with the Central Bank on a number of customer cohorts that we were investigating. However, I told the committee then that I hoped and expected to be in a position to give it considerably more information when we met next. Such disclosure has now been included in our completed questionnaire.

Since that meeting we have engaged with the Central Bank to conclude the identification phase of this review and we have fully understood the need to progress at pace for our customers. We have endeavoured in all our assessments to understand the full customer journey, as conveyed by the facts and considerations of reasonable expectations, to determine if a customer or a group of customers should be or should have been on a tracker rate and, therefore, be considered as impacted and receive redress and compensation.

The committee will be aware that in late October following engagement with the Minister of Finance and the Central Bank, the bank identified as impacted 417 mortgage accounts that should have been on a tracker rate or were on the incorrect tracker margin. Redress and compensation payments to those customer accounts commenced in November 2017 and full payments have now been made to all those customers.

Following supervisory engagement and challenge from the Central Bank, the bank concluded its analysis on other customer cohorts in late December and confirmed in a public statement as of 20 December 2017 that a further group of approximately 2,557 mortgage accounts were identified as impacted for a variety of reasons. This number includes approximately 1,907 mortgage accounts that up to July 2008 converted from a tracker rate to a fixed rate product post-drawdown, and ultimately rolled off to a non-tracker rate product. The documentation and terminology was not clear for these customers.

This number also includes circa650 PDH mortgage accounts that were identified as impacted, as they related to new mortgage applicants in the period from November 2006 to February 2008 who had drawn down their mortgage on a fixed rate, with a roll-off to a standard variable rate. While they were never on a tracker mortgage rate and did not have a contractual right to such a rate, the bank has decided to offer these PDH customers a tracker mortgage rate product if the account is still open.

Overall, the bank has identified circa2,974 mortgage accounts as impacted as part of the tracker mortgage examination. We have written to all of these customers to advise them that their individual mortgage account is being or will be reviewed, with a status update before the end of March, if the review is not completed. If they are going through a legal enforcement process, this is put on hold. If they are in the process of or considering selling or surrendering their property or applying for a form of debt resolution, we encourage them to discuss their options with their financial and-or legal advisers prior to committing.

I reiterate my apologies to all impacted customers for the harm and distress caused by the bank's error or failure. So far, it has made rate rectifications and redress and compensation payments to 501 customer accounts. Furthermore, the remaining mortgage accounts will be restored to the correct tracker mortgage rate by the end of February, if the account is still open, and receive redress and compensation payments as soon as possible but no later than the end of June. The bank has made a provision of €120,300,000 to account for redress and compensation payable to the impacted accounts since the start of the examination. In line with the tracker mortgage examination framework, it has established an independent appeals panel for customers who are not satisfied with the level of redress and compensation offered.

Regrettably, some customers have lost their homes or their investment properties as a result of not having been on a tracker mortgage rate. So far, we have concluded that six customers lost their homes as a result of not being on a tracker mortgage rate. We have also determined that 27 customers lost their buy-to-let properties for the same reason. We expect this number to increase as the individual causation assessment and calculations are completed in the recently identified cases. In determining causation, by which we mean establishing the link between the loss of ownership and the bank's error or failure, we have formulated our decision model to be as customer focused as we can in assessing these cases. The question we have tried to answer is whether the customer could at the time under the most lenient restructuring arrangement available to them have managed to make his or her mortgage payments if he or she had been on a tracker mortgage rate. If the answer to that question is in the affirmative, we conclude that he or she lost his or her property because of the bank's error or failure.

We appreciate that the financial compensation offered cannot compensate for the emotional stress caused by the loss of a home. For this, I sincerely apologise once again. We cannot undo what happened in the past, but we can provide for remediation and learn from mistakes. The bank has conducted the review under the examination framework in the interests of achieving a fair outcome for customers, identifying circumstances where the interaction between the bank and customers has been seriously deficient or the handling of customer cases has not been of a standard required under the framework. While taking into account its legal and contractual commitments in making its determinations, the bank's approach has been to ensure the balance of consideration is in favour of the customer. As we restore impacted customers to the correct tracker mortgage rate, make redress and compensation payments, respond to customers' questions or requests and, ultimately, the facilitation of the independent appeals process, the bank shall maintain this approach.

As a sector, financial institutions need to take meaningful incredible actions to regain the trust of all customers. Since the events leading up to the review, the bank has strengthened processes and procedures that are supported by a strong and more robust regulatory environment. We will continue to work towards the conclusion of the examination in all its facets. The bank's parent, KBC Group, has also taken the review very seriously. We are very supportive of the establishment of a banking standards board and an agenda to bring about cultural change in banking.

Mr. Deering, Mr. D'Arcy and I will respond to questions. I thank members for their attention.