KBC offers Visegrad vote of confidence as it pulls CEE plug

By bne IntelliNews October 9, 2012

bne -

Struggling Belgian financial group KBC offered the Central European banking sector a vote of confidence on October 8 as it announced it is set to offload all its businesses outside its home market save for those in the Czech Republic, Hungary and Slovakia, with its Bulgarian unit the only one from outside the Visegrad group to escape the guillotine. The geographic spread of the plan reflects the struggles of the big European banks that bet heavily on CEE for growth during the boom.

"The macroeconomic environment, competitive landscape and regulatory situation and outlook remain challenging," Chief Executive Johan Thijs said in a statement. "Our goal is to become more agile and efficient and thus more competitive." That will see it exit Germany, Russia and Serbia, along with selling smaller units in Belgium. "Absolut Bank (Russia), NLB (Slovenia), KBC Bank Deutschland (Germany), KBC Banka (Serbia) and Antwerp Diamond Bank (Belgium) will be divested," the statement continues.

The plan to halt all activities outside its "core markets" is part of a strategy to recover from the government bailout it was forced to seek in 2009, and involves a divestment programme agreed with European regulators. It's currently working to repay €4.67bn in state aid by the end of next year. To that end, the bank is targeting a reduction in its cost-income ratio to 55% by 2015, compared with the current 58%. Earlier this year, weighed down by exposure to southern European bonds and charges related to divestments, KBC posted a second-quarter net loss of €539m.

Many foreign banks might like to shift units in Southeast Europe, where they're struggling to find buyers even at rock bottom pricing. Meanwhile a whole host of foreign banks have quit Russia in the last two years, despite the country's relatively booming expansion, due to the growing dominance of state giants Sberbank and VTB.

"All activities which do not contribute to serving the client relationships in KBC's core markets will be stopped," the statement said. "Therefore, 'local responsiveness' becomes the key strategic priority. KBC will continue to build sustainable relationships with and offer added value to retail, SME and midcap client segments in its core markets."

At the same time, Czech subsidiary CSOB - the largest in the country by assets and including an investment bank, an insurer, factoring and leasing companies - is to be spun off into a new business unit, while the restructuring will also include "clarification of the future role of the Merchant Banking Business Unit."

Continuing the backlash against the risky trading strategies that have helped cause so much global grief, and the trend for eulogizing "classic" banking, Thijs promised in a press conference a return to more conservative times from KBC. "We are no longer going to bother with hyper-complex derivatives, he said. "We are going to focus on core bank and core insurance products - they have shown throughout the whole cycle they remained satisfactory."

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