Nama rules out rise in fees paid to banks

 

THE NATIONAL Asset Management Agency (Nama) has ruled out a further increase in the fees paid to the five participating institutions for administering €72.3 billion in loans for the agency, despite lobbying by the banks for an increase.

Nama has acquired the property loans of about 850 borrowers from the five lenders and the largest 175 debtors, accounting for about €61 billion of the debt, are managed directly by the agency.

The financial institutions are paid a fee of up to 0.1 per cent of the face value of the loans to cover the cost of administering the loans, depending on the ability of the institution to recover the loan.

This amounts to €72.3 million in fees based on the nominal value of the loans within Nama.

The fee was originally set at 0.06 per cent of the value of the loans but the European Commission recently approved the payments to be increased up to 0.1 per cent. The increase in the fee is at Nama’s discretion and where warranted to recover costs, according to a spokesman for the agency.

The spokesman ruled out any additional increases. “There are no discussions,” he said.

The administration fees paid to institutions vary depending on the work they are required to do for Nama but that the fees would not be higher than 0.1 per cent.

A number of the financial institutions have criticised the size of the fee, saying that it does not cover the cost of servicing the loans day-to-day for Nama.

Bankers have pointed out that other State-run asset management agencies pay higher administration fees to the banks for servicing the loans and that Nama’s arrangements do not incentivise the banks to manage the loans effectively.

David Hodgkinson, the executive chairman of AIB, told the Department of Finance in a letter last January that the servicing fees under Nama were “insufficient to meet the costs related to servicing those relationships”.

He wrote to the department’s secretary general Kevin Cardiff to object to plans to transfer smaller land, development and related loans under €20 million under the so-called Nama 2 process.

He warned that the problem of insufficient fees would be compounded under the Nama 2 transfers, which at the time were proceeding under the terms of the €85 billion EU-IMF bailout.

“Ultimately, the costs have to be met and the bank will likely require an increase in servicing fees, which in turn will impact the profitability of Nama,” he said.

The IMF, the European Commission and the European Central Bank agreed earlier this month that the Irish banks would not have to transfer the €12 billion batch of small loans to Nama.

The agency has yet to publish its quarterly results for the final three months of 2010, which are awaiting sign-off by Minister for Finance Michael Noonan.