Mr. Wim Verbraeken:

I thank the Chairman and the members of the committee for the invitation and opportunity to represent KBC Bank Ireland. I would like to introduce our delegation. I am accompanied by two members of the bank's senior management team, namely, Ms Dara Deering, executive director of retail banking, and Mr. Brendan Mahon, director of recovery.

The committee has received our written responses to the questionnaire. With the agreement of the committee, I will read my opening statement following which we will respond to any questions committee members would like to ask. I am keen to focus on the following: an update on the bank's progress under the tracker mortgage examination, the bank's recent performance and customer offering and how the bank is dealing with non-performing loans.

In our appearance before this committee in February we provided an extensive overview of our position on the tracker mortgage examination. I will update the committee today on our position at the end of June, the analytical detail of which has been included in our completed questionnaire. The tracker mortgage examination and the payment of redress and compensation to customer accounts previously identified as impacted have continued to receive the highest attention at KBC in recent months. The total number of mortgage accounts identified as impacted at KBC is 2,754 relating to 2,335 customers. Since we appeared before the committee, detailed testing and review of individual files has continued and this has led to the numbers presented today. Final quality checks and further sampling to validate our methodology will continue. However, we expect that any changes to the numbers will be minimal at this stage.

The Bank has contacted all affected customers and mortgage rates have been rectified on all impacted tracker mortgage accounts. This rate rectification process concluded at the end of February and all impacted customers are now on the correct rate. We can confirm that full redress and compensation payments to all impacted customers have been processed, with circa 2% pending as we continue to trace such customers. This is in accordance with our prior commitment to complete this process by the end of June.

We wish to reiterate the bank's offer of apology to all impacted customers for the harm and distress caused by the bank's errors or failure. Mistakes were made and we are sorry for the damage caused.

In line with the tracker mortgage examination framework the bank has established an independent appeals panel for customers who are not satisfied with the level of redress and compensation offered and paid by the bank. To date, the total number of appeals made through the appeals mechanism is 65. Three appeals have been concluded, including two cases in which the bank's decision was upheld and one case in which the appeal was upheld in favour of the customer. Therefore, 62 appeals have yet to be concluded through this process.

In 2016 and 2017, the bank made a financial provision of €120.3 million to account for redress and compensation payable to impacted accounts identified since the start of this examination. The bank has strengthened processes and procedures that are supported by a stronger and more robust regulatory framework.

The bank's parent, KBC Group, has taken this review seriously and has closely followed the process of resolution. The bank is engaging within the industry through Banking and Payments Federation Ireland, BPFI, and playing an active role in the establishment of the new independent body on banking culture and standards. This initiative, together with the recent review by the Central Bank on culture and behaviour, will support the work that needs to be completed throughout the sector to achieve a strong customer-focused culture and to rebuild consumer trust in the banks.

In addition to the process involved with impacted customers, KBC is progressing an extensive effort towards responding to questions asked by the Central Bank under an administrative sanctions procedure related to the tracker mortgage examination. Given its status we are, however, not yet in a position to comment further on the process.

I will set out the recent performance of KBC Bank Ireland. It is nearly one and a half years since the KBC Group confirmed its commitment to Ireland with an intention to provide choice and competition for Irish consumers. The bank has had a strong start to 2018 with almost 20,000 new customer accounts opened in the first three months of the year and new mortgage production significantly ahead of last year's level. This achievement builds further on the sustainable growth in market relevance achieved throughout 2017 as a newly-appointed core entity of KBC Group. We are seeing growth in all areas of our Irish business with customers increasingly banking with KBC for multiple products at a time, especially current accounts and mortgages or current accounts and deposits. The bank has launched a number of digital customer-facing innovations to the market. Consumers are responding positively to this approach as we see digital banking activity rise year on year. Underpinning the pace of digital development in KBC is the bank's deepening collaboration with financial technology companies and consumer technology brands led by its innovation hub in Ireland and supported by KBC Group's €1.5 billion investment budget earmarked to transform the group's digital capabilities Europe-wide. Importantly, in the past month KBC has also launched its new banking proposition for microenterprises. In a spirit of co-designing its proposition with customers, KBC has worked with microenterprises such as dental, general practitioner, architect and accountancy practices to understand their business banking needs and to build the platform and products that will facilitate their operation and growth.

As the bank's stated ambition is to grow its customer numbers in Ireland from approximately 273,000 currently to 425,000 by the end of 2020, KBC continues to compete across a full retail product offering, which includes current accounts, mortgages, personal loans, insurance, savings and investments and, ultimately, a corresponding offering for micro-SMEs.

New mortgage lending by the bank in quarter 1 of 2018 was €198 million, up 61% from 2017, as first-time buyers, movers and switchers responded to the bank’s no-gimmicks approach to mortgage pricing, featuring rates that lead to lower monthly repayments and better long-term value. Further changes to KBC's mortgage rates have cemented its competitive position as this year KBC reduced mortgage rates on variable, two-year, three-year and five-year fixed rates by between five and 20 basis points. This offers new and existing customers some of the most competitive rates in the market. More than 81% of all KBC customers drawing down a mortgage in quarter 1 of 2018 opted for certainty in repayments through a fixed rate, which is an increase of 29% on this time last year.

We have also seen further activity growth in savings and investments in the recent period as the market exit of other deposit-taking banks has created opportunities for KBC. We have competed for this business and by doing so provided further choice for consumers in terms of saving and investment options in the Irish market.

The pace of change in technology and consumer expectations implies that KBC sees the need to continually innovate to ensure the bank remains ahead of its competition within the Irish market and is attractive to switchers. Listening to consumers on an ongoing basis and meeting their evolving needs will help KBC to create greater value, better service, more choice and, ultimately, competition. As part of KBC Group, we remain committed to growing sustainably in Ireland to meet our ambitions for this market, providing consumers with a real alternative in banking.

With regard to the resolution of non-performing loans, NPLs, we understand the desire of regulators at both an Irish and European level for lenders to deal effectively and expediently with non-performing loans for the protection and stability of the banking system and the support of economic activity. KBC's engagement with the joint supervisory team at the European Central Bank and Central Bank of Ireland on NPLs has been constructive, with ongoing interaction on strategy, performance and the evolution of loan books.

NPL levels have reduced by almost half, from €8 billion in December 2014 to €4.5 billion at the end quarter 1 of 2018. However, despite this progress, as the bank did not transfer loans to the National Asset Management Agency, NAMA, and to date has not undertaken any sales of corporate and SME loans, owner-occupied or buy-to-let mortgages to third parties, its NPL levels remain high by comparison with other financial institutions. As such, 37% of the bank's mortgage portfolio is classified as non-performing and this will need to reduce substantially over the coming years. To date, the bank has successfully focused on working with its corporate and retail customers on a case-by-case basis to resolve distressed loans and arrears and, ultimately, reduce NPLs. However, we will continue to assess all options available to the bank to materially reduce NPL levels.

Regarding our assistance to customers experiencing financial difficulties, I reiterate we have strong empathy for the many customers who have experienced difficulties in making their mortgage payments in recent years. Progress has been made in the resolution of such cases and the number of mortgages in arrears at KBC is down 58% since its peak in December 2013, with nine out of ten customers in difficulty having been offered a proposal from a range of resolutions. It has been our experience that customers who engaged with the bank fully have achieved better outcomes and we actively encourage any customer in financial distress who has not already engaged with us to contact our arrears support unit. KBC has worked consistently with customers in financial difficulty to avoid the need for a loss of ownership and the bank has implemented a range of forbearance and restructuring options with customers who are experiencing difficulty. This has led to a reduction in the number of customers in difficulty or awaiting a resolution. However, for genuinely unsustainable cases, such loss of ownership may be unavoidable.

There have been repossessions this year as a result of a legal process. Repossessing a home or property is always the last resort, as KBC works consistently to minimise the need for such repossession. We will continue to work with customers in difficulty now and in the future.

I reiterate that our ambition at KBC is to be the alternative, challenger bank for Irish consumers. We want to be a source of competition in the Irish marketplace and we have the access to support and innovations from within the KBC Group to deliver on that ambition.

Ms Deering, Mr. Mahon and I will now respond to any questions the committee may have.