Regulator admits €15bn of bank loans 'vulnerable'

 

The solvency of Irish banks was called into question yesterday, as members of the Oireachtas Committee on Economic Regulatory Affairs queried the Financial Regulator’s assertion that only €15 billion of property loans are “vulnerable”.

They also expressed concern that the bank’s regulatory buffer may not be enough given the economic slowdown.

Appearing before the Committee, chief executive of the Financial Regulator Patrick Neary said that the six Irish banks covered by the Government’s guarantee scheme currently have a regulatory capital buffer of €42 billion, but he identified €15 billion of property loans as being “vulnerable”.

However, the committee expressed concern that the proportion of vulnerable loans might actually be higher than €15 billion, and Damien English questioned whether additional property loans of €24 billion, which are supported by additional collateral or alternative sources of cash flow and realisable security, might actually be supported by assets whose value has also declined considerably, such as personal share portfolios.

Financial Regulator Prudential Director Con Horan acknowledged that this was a possibility, although he was of the opinion that most of these assets were cross-collateralised against other assets.

Mr Neary was also questioned repeatedly on the capitalisation of Irish banks, and whether or not an injection of capital, akin to that given to UK banks, was needed.

Although he maintained his view that Irish banks remain well capitalised, he added that it “may well be that banks will have to raise additional capital”, as “market conditions remain extremely difficult”.

Of the Government’s bank guarantee, Mr Neary said it has proven “successful in that it has stabilised the funding situation” and added that that there had been “substantial inflows of funds” into Irish banks following the guarantee. Latest European Central Bank (ECB) figures indicate that lending to Irish banks reached €69.3 billion as of October 7th.

This growing dependence on the ECB as a source of funding led Leo Varadkar to comment, “If it wasn’t for the ECB we’d be like Iceland”.

While the tenability of Mr Neary’s position was raised by several committee members, Senator Shane Ross called outright for his resignation, on the grounds that both investors and depositors have lost confidence in the Financial Regulator.

“The only people who have confidence in you are the banks and the property developers,” Senator Ross said, and he went on to describe the regulator’s relationship with the banks as being “too cosy to be comfortable”.

Mr Neary rejected Senator Ross’ assertion that he was acting in the interests of the banks, and said that the regulator has retained a sense of objectivity and that he had the “full support” of the authority.

When questioned about the Regulator’s approach to supervising the banks, Mr Neary admitted that the authority, apart from its recent sanction on Irish Nationwide, has never fined a bank.

In addition to the measures which will be introduced as part of the Government’s guarantee of the banks, Mr Neary also said yesterday that the Regulator will increase its focus on the management of credit and liquidity risks of the banks, through measures such as the recruitment of an additional 20 senior supervisory staff and introducing enhanced reporting obligations in relation to capital, asset quality and individual large loans to supplement its daily liquidity reporting requirements.