THE INTERNATIONAL Monetary Fund (IMF) told Minister for Finance Brian Lenihan last April that the National Asset Management Agency (Nama) would not lead to a significant increase in lending by the banks.
The comments, which appear in internal Department of Finance documents released to The Irish Timesunder the Freedom of Information Act, were made by senior IMF official Steven Seelig who will join the board of Nama in May.
Minutes of a private meeting at the department between Mr Lenihan and IMF officials on April 29th last state that the “IMF (Mr Seelig) do not believe that Nama will result in significant increase in bank lending in Ireland”.
The meetings were held for the purposes of the IMF compiling its annual economic assessment on Ireland in the so-called Article IV report published last June.
The Government has maintained that Nama’s purchase of bad loans from the banks with State bonds would increase the flow of credit in the economy since the plan was unveiled last April.
Speaking at the publication of the Nama legislation last September, Mr Lenihan said Nama would “strengthen and improve” the funding positions of the banks “so that they can lend to viable businesses and households”. Taoiseach Brian Cowen had said the Government’s objective in restructuring the banks was to generate “more access to credit for Irish business at this critical time”.
The IMF endorsed the Government’s plan to recapitalise the banks and to clean up their balance sheets by establishing Nama.
In another internal document, the department repeats the IMF’s belief that Nama will not lead to significant lending, citing references to meetings with Ulster Bank and AIB for this conclusion.
While the IMF supported the policies on the banking sector and the public finances, it said the Government “faces a huge task that will take three to five years of very careful management”, according the minutes of the meeting with Mr Lenihan.
The IMF also expressed surprise at concerns raised by the EU Commission’s competition division over state aid rules, saying that it “did not agree that anti-competitive issues were as important as resolving the problem in the financial institutions”.
In a separate note on State-owned Anglo Irish Bank, the IMF queried the health of the bank’s non-land and development loans. However, the bank said the losses on these loans would be “nothing close” to those on the property and development loans.
In a briefing note on a meeting with the Irish Banking Federation, the IMF said it would encourage Nama “not to cave in to (sic) readily” to the banks on the haircuts on loans moving to Nama.
In an internal e-mail dated June 6th, 2009, sent in response to a draft copy of the IMF’s report on Ireland, senior department official Kevin Cardiff warned against making public any official estimate for the losses faced by the banks, saying that the department had not made this information public. “We naturally shared with the IMF team our informal views on the range of possibilities, but would be uneasy about seeing these formalised,” said Mr Cardiff, who has since been appointed secretary general of the department.
The IMF estimated in their published report the domestic banks would face losses of up to €35 billion, though the department pointed out this would be partly funded from operating profits and provisions already taken against some loan losses.
Mr Cardiff also said in his e-mail that the National Pension Reserve Fund, which was used to fund the €7 billion recapitalisation of AIB and Bank of Ireland, was “not necessarily the most appropriate structure for all recapitalisations”.
While supporting the creation of Nama, the IMF said taking over soured property loans was “not costless”. “It’s the only way you get through this thing – however, Nama may have to put money into assets to develop market interest in them,” the IMF said in its meeting with the Irish Banking Federation.
The IMF queried AIB selling some of its businesses during meetings last April, saying that the bank “assumed that the market already priced this in”. The bank has considered selling its stakes in the Polish bank Bank Zachodni and US bank MT as a way of generating cash for the business.