BELGIAN BANK KBC has said it will retain and review its Irish bank in a sharp downsizing of the overall banking group as a condition of EU approval for the state rescue of the bank.

The bank said KBC Bank Ireland was not a “strategic fit” for the overall group compared with other areas but signalled it had not been earmarked for divestment.

KBC listed its Irish operations in the “keep and review” category as part of the group’s restructuring. “Our priority will be to build on our existing bancassurance platforms within Belgium and five selected eastern European markets,” said KBC group chief executive Jan Vanhevel.

Mr Vanhevel said KBC’s Irish operation was not a “core” business but it was profitable, despite difficult domestic economic conditions. KBC did not need to divest its Irish business to reimburse or refund government aid, he added.

KBC Bank Ireland chief executive John Reynolds welcomed the announcement, saying the bank contributed 10 per cent of the group’s profits, earning the Belgian parent €68 million of the €680 million in profits posted for the first nine months of this year.

“We more than pay our way and they recognise that. They have been in this country for 35 years and they take that seriously.”

Mr Reynolds said the Irish bank was “unique” within the group in that it was one of KBC’s first overseas investments. KBC has 450 staff in Ireland.

The group has pledged to downscale its merchant banking unit and sell its private banking business as well as a string of other divestments in return for keeping its core bancassurance model intact. The changes will be undertaken to repay government aid and streamline operations.

The group, which has received €7 billion in state aid, won EU approval yesterday for its restructuring plan.