SENIOR ALLIED Irish Banks officials claimed yesterday that fake guarantees were central to it agreeing to loan £740 million (€926 million) to two alleged fraudsters for property deals.

They was giving evidence at the trial of Achilleas Kallakis and Alexander Williams, who are facing charges that they conspired to defraud AIB, which lent them £740 million for 16 property purchases on the back of an allegedly forged guarantee from a Hong Kong property firm, SHKP.

While the men bought the properties as planned, they were accused of presenting AIB with a series of fake guarantees for each loan that increased the value of the deals significantly.

The fraud allegedly operated by the men involved inflating the value of the leases of various tenants in office blocks they wanted to buy and refurbish across the UK. Without the “overriding leases” the properties were worth less than the sums borrowed.

Kallakis, who is accused of being “in the driving seat” of the operation, is accused of persuading banks to let him borrow millions more than the asking price.

He was allegedly aided by Swiss friend Michael Becker, who is not facing trial but is accused of setting up a Swiss bank and trust fund account to help manage the loan money.

At Southwark Crown Court in London yesterday, members of AIB’s credit committee said they should not have approved the loan applications.

Chairwoman Elizabeth Beatty was on the committee that approved a loan to buy India House for £8.6 million in March 2005, when it was worth only £7.1 million. She said the SHKP documents were a “critical factor” in sanctioning the deal, which had a loan-to-value ratio of 120 per cent. The committee also approved a loan of £35 million on a deal worth just £27.75 million.

Committee chairman David Meagher said the “existence of the overriding leases was fundamental to the group credit committee decisions”. Likewise, AIB broker Kieran Bennett said the Market Towers application “was a much weaker deal without the overriding leases”.

Kallakis and Williams both deny two counts of conspiracy to defraud, 13 counts of forgery, five counts of fraud by false representation, two counts of money laundering and one count of obtaining a money transfer by deception.

The trial was adjourned until tomorrow.