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Thursday, July 09, 2009
PROPERTY loans will be transferred from the country’s main banks to the National Assets Management Agency at an "appropriate write down", Finance Minister Brian Lenihan insisted yesterday.
He was responding to questions in the Dáil about how NAMA would valuate the loans for which it took responsibility.
Under the government proposals, NAMA will take performing and non-performing property loans off the hands of the banks.
The goal is to provide the banks with a clean bill of health and reduce uncertainty over bad debts.
The key question is the amount NAMA pays in return for loans. Under an example posted on its website, a bank would sell a €100m loan to NAMA for €60m. But the borrower would continue to owe the full €100m to NAMA.
The risk is if the borrower defaults and NAMA is left with land or assets worth substantially less than the €60m it has paid.
Quizzed on the matter, Mr Lenihan said the valuation methodology would be based primarily on "current market value and the underlying longer-term economic value of the assets".
That answer immediately raised further questions, with Labour finance spokeswoman Joan Burton saying NAMA should veer firmly towards the current market value.
Paying higher prices because of the asset’s potential long-term value risked exposing the taxpayer to a massive burden if the asset ultimately proved to be of little or no value, she indicated.
Mr Lenihan said the valuation methodology had not yet been finalised, but stressed that the "developing of thinking" on the issue was along the lines mentioned by Ms Burton and others.
"The key point in regard to the valuation of those assets is exactly as Deputy Burton stated, namely that there has to be a very steep discount," he said.
"In addition, in the case of land, the potential for any medium-term economic value has to be very carefully evaluated because in some cases there may be no medium-term economic value."
Meanwhile, one in four small to medium-sized firms have been refused credit over the past year by banks, Mr Lenihan revealed.
Company responses indicated an average refusal rate of 24%, rising to 30% for so-called "micro-enterprises" with fewer than 10 employees, he told the Dáil.
Bank data indicates that their rate of refusal is 14%. The difference is due to banks not counting "informal" requests.
"Banks do not record informal queries or requests but a customer whose informal request is rejected counts that as a refusal," Mr Lenihan explained.
Fine Gael finance spokesman Richard Bruton described the figures as "extremely worrying".
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