Up to €60bn more in loans 'need to be taken from banks'

A FURTHER €50 billion to €60 billion in loans need to be removed from the banks and sold over time to reduce the size of the …

A FURTHER €50 billion to €60 billion in loans need to be removed from the banks and sold over time to reduce the size of the banking system, the National Treasury Management Agency (NTMA) has said.

This is on top of the €87.2 billion in property and related loans being taken over by the National Asset Management Agency (Nama) and is part of the EU-IMF programme to “deleverage” the banking system so it can fund itself on its own.

Michael Torpey, who is in charge of the Government’s banking functions at the NTMA, said the plan was to put the additional loans in a “warehouse” outside the core parts of the banks, which would service the future needs of the economy, and to sell them over time to get the best price so it “doesn’t lob a bill on to the taxpayer”.

“We want a banking system that meets Ireland’s needs well. It will take a lot of time and this is where the warehousing issue comes up,” he said.

It was unlikely that the loans, which include both good and bad assets, would be put into Nama or another Nama-type entity, he said. The use of such an agency to take out the further loans was “likely to be a misnomer”.

The aim was to create “a parking space” to take control of these “non-core loan assets”, he said.

Rather than selling them to buyers of distressed debt at the expense of the State, “put them in the warehouse and sell them when there are buyers out there who have an appetite to pay a full price for them.

“The only thing frankly that I am interested in is getting ourselves back to a banking system that isn’t costing the taxpayer a shed-load of money and is serving the needs of the economy,” Mr Torpey said.

Several options were being considered as a home for the loans, including the use of the merged remnants of Anglo Irish Bank and Irish Nationwide or the creation of internal non-core units within the banks or another outside entity.

The aim was to avoid “a plethora of little pieces around the place”, but there was still “no hard or fast rule” where the loans would be housed. The European Commission had yet to approve the process.

The value of the loans would be checked again in the Central Bank’s second round of Prudential Capital Assessment Review (PCAR) stress tests in March.

Moving the loans would involve some level of discounts being applied, but NTMA chief executive John Corrigan said that write-downs had already been taken.

Mr Torpey said he had not seen anything to show there would an additional cost to the State. The “horrible bill” for the banks was discovered last year, he said.

There was “a very strong logic” in merging the post-Nama rumps of Anglo and Irish Nationwide, he added.

Moving their deposits was “clearly a challenge” but he was hopeful of retaining them all if moved to “another institution of sufficient quality and repute” with the backing of the Government guarantee.