No need for NAMA to borrow, says NCB

NAMA will not need to borrow from investors to fund its operation, according to a new report.

Though the Government will have an obligation to stand behind its debts, the NAMA bonds being issued by the state to cover the €54bn in loans transferring across to the bank are in effect IOUs.

And according to a new NCB analysis the only addition to the Government debt as a result of the setting up of the bad bank will be the funds raised to recapitalise the banking sector.

“It is not clear how much this will add to debt, but it could be nothing if the state uses existing cash reserves” for that purpose, it said.

Following the loan transfer and subsequent writedowns, the state will be required to dip into its cash reserves (or borrow) to assist in the recapitalisation process, said NCB. “We estimate an injection of €7bn will be needed to leave the nationalised Anglo Irish Bank together with the building societies in a strong capital position.”

In the case of the two big banks, there is a risk that further equity will be required for AIB and BoI, a fact highlighted yesterday by Central Bank governor Patrick Honohan.

Overall, the brokers reckon that AIB and Bank of Ireland may require up to €8bn in additional capital which is higher than the €6.3bn estimate made by Davy Research last week.

In the case of the €54bn in IOUs, NCB said the debt market cannot disregard that figure as the bonds are ultimately backed by the state.