Michael Noonan signals stress tests for Irish banks next year

Minister for Finance Michael Noonan has said the next round of capital stress tests of Irish banks would take place in the first half of next year and not before our EU-IMF bailout programme concludes at the end of 2013, as was originally planned.

Mr Noonan said yesterday he does not expect that these tests will result in the banks requiring extra capital to bolster their balance sheets and to meet their regulatory requirements.

The Minister said some form of “backstop” arrangement would be put in place to smooth Ireland’s exit from the bailout and its full re-entry into the markets.

Agreement reached
One outcome might be to supply us with a preferential line of credit, but Mr Noonan said a number of options are being discussed with the EU and IMF.

Speaking at the launch of the State’s new Irish Strategic Investment Fund at Grangegorman, Mr Noonan said: “We have reached agreement with our European partners and the IMF that our next round of bank stress testing will be in close proximity, but slightly in advance of the general round of stress testing in Europe. So it will be in the first half of 2014 rather than this autumn.”

This will come as a relief to the Irish-owned banks who had called for the next set of stress tests to take place around the same time as the EU-wide ones. Bank bosses say they could be at a disadvantage to their European peers if Ireland was forced to go months early just to satisfy a timetable set down under the terms of the bailout agreement.

No date has been agreed for the EU-wide stress tests, but they are expected to happen in the first half of 2014.

Further capital
When asked if the banks might require more capital after these stress tests, Mr Noonan replied: "At present, all our calculations would suggest that no future capital is required. We are well within the margins at present."

Earlier this week, ratings agency Fitch suggested Irish banks might need further capital to meet tighter Basel III financial reporting requirements. However, these will be phased in over the next decade.

The Minister’s comments related to the stress tests that will take place next year.

Mr Noonan said Ireland would not be fully out of the bailout programme until the stress tests had been completed next year, although it was the Government’s “ambition” and “expectation” that Ireland would be fully funded in capital markets next year at “low interest rates”.

“The [bailout] programme will be completed when the stress testing is completed.”

Similar tests
The latest update on the implementation of the troika bailout programme was issued yesterday and stated that stress tests for the Irish banks will be carried out next year, close to or slightly before similar tests are to be carried out on banks across the EU.

Ireland will use the same methodology in its tests as those used in other EU states.

Mr Noonan said this could mean that the 10.5 per cent Core Tier 1 capital ratio in place for Irish banks would be lowered. A 9 per cent ratio applies to banks in Spain and Cyprus. The Minister said discussions on establishing what ratio will apply in the stress tests were ongoing.

Other matters covered by the update include the reporting by the authorities by the middle of this year of options for lowering the funding cost of banks’ tracker mortgages, with a study later in the year comparing Irish bank fees with those of banks abroad.