The governor of the Central Bank, Patrick Honohan, has said the Government will take additional equity stakes in the Irish banks as part of the recapitalisation process.
Although he could not “put a number” on the future cost to the State of recapitalising the banking system, Mr Honohan said the overall net cost will be “manageable”.
“It will of course be a sizable sum, though some of what is needed may be raised by the banks themselves through such steps as asset sales, new issues of equity, and discounted debt buybacks,” he said.
Speaking this morning at the launch of the Trinity Alumni Career Network, Mr Honohan said the recapitalisation will ensure that the banks are seen in financial markets as “strong, financially self-reliant entities”, and that the “overhang of the banking situation” on the State’s finances will be removed. As a result, Ireland’s borrowing spreads will tighten further, he predicted.
The State’s borrowing rates are already significantly lower than they were a few months ago, he pointed out, and have remained “relatively unscathed” despite the turmoil in international sovereign debt markets in recent weeks.
He also praised the Government’s macroeconomic policies and budgetary adjustments, describing them as being “about right” as a basis for building a sustained recovery.
Mr Honohan went on to criticise the banks for having “lost their edge” in relation to small business lending during the property boom. “This is something that they need to pay more attention to, not just for the sake of the economy, but for their own business performance in the years ahead when property-based lending will be on a much more limited scale,” he said.