Nama will not leave country awash with cash, says AIB

THE CHIEF executive of Allied Irish Banks (AIB), Eugene Sheehy, has said that the country “won’t be awash” with credit immediately after the Government acquires loans through the National Asset Management Agency (Nama).

The quality of the banks’ balance sheets would improve once they receive €54 billion in Government bonds from Nama, said Mr Sheehy, but it would not lead to an immediate flow of credit.

“If people think the day after Nama that the country is going to be awash with money – that is not going to happen,” he said.

“The banks’ balance sheets will be stronger. That will help the banks access long-term funding cheaper and there will be a trickle down effect.”

Nama was “not a panacea”, he said, but the Irish banking system would be “in terrible trouble” if it wasn’t for the new State agency.

The three highest ranking bankers at the country’s two largest lenders, AIB and Bank of Ireland, presented separately to the Oireachtas Joint Committee on Finance and the Public Service.

They were questioned on the interest charged to customers over the cost of funding and a range of other issues on the banking sector.

Fine Gael TD Kieran O’Donnell asked whether AIB would swap the Nama bonds for cash at the European Central Bank to generate fresh credit to the economy.

Mr Sheehy said that this was “one of the options” for AIB, which will sell €24.1 billion in loans to Nama.

Mr O’Donnell questioned why the Government had said Nama would allow the banks to provide greater levels of credit into the economy if AIB would not use the bonds to draw cheaper funding.

“We will use the Nama bond to improve our overall funding position,” said Mr Sheehy who is retiring at the end of this month.

Nama had improved the funding for banks, he said, and it would be an enormous benefit.

Mr Sheehy said AIB would like to retain its investment in its Polish division, Bank Zachodni, as it was providing liquidity for the banking group given that it had more deposits than loans in Poland.

“The worst thing we could possibly do would be to withdraw support from a market that is actually helping Ireland,” he said.

AIB has said that it is examining a range of options, including asset sales, to raise additional capital to absorb losses on the Nama loans.

Dan O’Connor, executive chairman of the bank, said AIB “fully accepted” that many of its problems were “self inflicted” and that the bank’s viability and credibility had been very damaged.

“I am going to do everything in my power that we don’t repeat the errors of the past,” he said.

Mr O’Connor said that the management team unveiled last week had “the right combination of internal and external experience”.

The appointment of an executive chairman “was not in keeping with corporate governance best practice”, he said, but the bank had “no intention of keeping this post longer than is necessary”.

Fine Gael finance spokesman Richard Bruton said the bank had “handicapped” itself by appointing internal candidates as it did not “give a general signal that everything is changing”.

The bank is planning to produce a circular for shareholders shortly to approve the bank’s participation in Nama.

Mr Sheehy told the committee that competition for deposits was “intense” and “uneconomic”. AIB had borrowings of €10 billion, or 6 per cent of its balance sheet, from the ECB to help fund its business, he said.

Robbie Henneberry, head of the bank’s Irish division, told the committee that the bank had provided €15 billion in funding to small and medium-sized enterprises (SMEs).

Mr Sheehy said that no restriction had been placed on the availability of credit provided by this division. AIB accounts for 40 per cent of SME lending in Ireland.