Central Bank paid €11m for balance sheet assessments

The Central Bank paid €11 million to three consultants for the balance sheet assessments that were carried out on AIB, Bank of Ireland and Permanent TSB in the second half of last year as a condition of our exit from the EU-IMF bailout programme.

Much of this work is now going to have to be repeated in the coming months as part of the European Central Bank’s comprehensive assessment of the health of banks’ balance sheets in the euro zone in advance of its assuming supervisory oversight in November.

The money was paid by the Central Bank of Ireland to Boston Consulting Group, EY and KPMG.

Boston was contracted as the independent assessor and provided project management resources. EY conducted the loan file and impairment model reviews of AIB and PTSB, while KPMG did similar work in relation to Bank of Ireland.

Problem loans
The assessments showed that each of the three Irish banks should take extra provisions in relation to problem loans but that none of them needed additional capital.

The exercise was based on balance sheet values at the end of June 2013.

These details emerged from an answer given by Minister for Finance Michael Noonan to a question by Michael McGrath, Fianna Fáil's finance spokesman. The Minister said the final cost of the assessments remain to be determined but it is expected to be €11 million, including VAT. He said the Central Bank would pay the costs of the consultants.

However, “all costs incurred” on the assessments are “100 per cent recovered” from AIB, Bank of Ireland and PTSB, he added. This means that the costs will ultimately be borne by customers of the three banks.

Mr Noonan said the work undertaken last year would go “some way to satisfying” the requirements of the pan-European asset quality reviews.

It had been hoped the balance sheet assessments on the three banks would satisfy the ECB’s requirement for asset quality reviews to be conducted in advance of full-blown capital stress tests later this year. They are essentially the same exercises.

Merrill Lynch
However, it was confirmed recently that AIB, Bank of Ireland and Permanent TSB will be subjected to the asset quality reviews. Ulster Bank and Merrill Lynch International, which is based in Dublin, will also be subjected to this test.

The asset quality review and stress tests are designed to test the strength of balance sheets at 128 financial institutions in the euro zone in advance of the Single Supervisory Mechanism taking effect in November.

A spokeswoman for the Central Bank of Ireland said it is currently in a procurement process for third party advisers for the asset quality reviews.

Staff numbers
Separately, the Minister told Mr McGrath that AIB and Bank of Ireland reduced their staff numbers by 3,223 in the 18 months to June 2013.

In addition, staff numbers at Irish Bank Resolution Corporation reduced to 566 at the end of November last from 1,182 at the end of 2011. This was largely due to the bank being placed into liquidation by the State in February 2013.