Honohan forecasts rosy future for banks

IRISH BANKS will emerge from the financial crisis well capitalised, solid and “so strong” that private capital will be “scrambling” into them, Central Bank governor Dr Patrick Honohan has said.

Speaking to reporters after an Enterprise Ireland conference in Dublin, Dr Honohan said there would be capital injections into the banks next year and that transferring loans into the National Asset Management Agency (Nama) would lead to “a careful evaluation” of the banks’ capital needs.

He declined to say whether private or State capital would make up most of next year’s injections. He was hopeful the banks could raise private capital, and that “in due course there will be private capital scrambling into Irish banks they will be so strong”.

“The Irish banks are going to leave this situation well capitalised, solid. They will have adequate capital to convince the market that they are going ahead on their own steam, without having to rely on anyone else.”

Calling for further research into regulatory monitoring, he said the global economy was recovering from a “V-shaped” collapse in trade, triggered by the loss of credit and confidence in financial institutions. The need to rebuild capital in financial firms and limit credit growth, as well as uncertainty about creditworthiness, would dampen financial growth in the short to medium term.

Dr Honohan referred to a recent report by UK economic group the Warwick Commission which recommended that banks should be forced to set aside 1 per cent more capital for every 3 per cent increase in additional loans.

“This could have resulted in a regulatory demand for as much as 10 or even 20 per cent more of total assets held back by capital,” he said, adding that this would have forced the Irish banks to set aside a further €30 billion to absorb losses on their loans.

“If Irish banks had 20 per cent of their assets more in capital – in other words, let’s say, if they had €30 billion more in capital – it would have been enough.”

He said there was a potential for greater research into regulatory monitoring.