KBC moves Irish subsidiary's capital base to 100% equity
KBC Group has increased the share capital in its Irish banking subsidiary to satisfy European Central Bank (ECB) requirements to change the structure of its capital buffers in the country. The ECB ordered KBC Bank Ireland to maintain a minimum common equity tier-1 ratio of 10.5%, leading to the issue of 224 million ordinary shares to KBC Group at €1.25 per share. KBC Bank Ireland's capital base is now comprised entirely of equity. 

The transaction was concluded in recent weeks and involved the issuing of 224 million ordinary shares of €1.25 in KBC Bank Ireland to KBC Group. Photograph: Bryan O’Brien

Belgian financial services group KBC has subscribed for additional share capital in its Irish banking subsidiary to satisfy a requirement from the European Central Bank to change the structure of its capital buffers here.

KBC Bank Ireland replaced an existing €280 million additional tier 1 (AT1) capital instrument that was held entirely by the KBC Group with ordinary share capital purchased by its Belgian parent.

The move follows a routine annual review of the bank by the ECB, which required KBC Bank Ireland to maintain a minimum CET1 (common equity tier 1) ratio of 10.5 per cent from June 30th of this year.

The transaction was concluded in recent weeks and involved the issuing of 224 million ordinary shares of €1.25 in KBC Bank Ireland to KBC Group.

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Proceeds

The proceeds were then used to repay, at par, the €280 million loan instrument, that had been put in place by the Belgian bank a number of years ago and was deeply subordinated.

In April, The Irish Times reported that KBC had increased its authorised share capital by €500 million to €3 billion, based on documents filed with the companies office.

This was achieved through 400 million additional ordinary shares being created at €1.25 apiece. The bank declined to comment on this move at the time but it was clearly designed to pave the way for this latest transaction.

Equity

The result of this move is that KBC Bank Ireland’s capital base is now comprised entirely of equity, which is considered the strongest form of capital by regulators.

Its total capital ratio at the end of the first quarter had been 13.2 per cent, which included ordinary share capital and the AT1 capital instrument.

Commenting on the transaction, Wim Verbraeken, chief executive of KBC Bank Ireland, said: "This is a positive development for all stakeholders in the bank and a statement of confidence by our shareholder. We clearly exceed the new targets set by the ECB, and our capital buffer and underlying profitability will provide sufficient scope for future growth in lending."

KBC Bank Ireland is a wholly-owned subsidiary of KBC Group.