Noonan: Banks will have €30bn to lend

IRELAND’S pillar banks — Bank of Ireland and Allied Irish Bank/EBS — will have €30 billion to lend to Irish businesses over the next three years, Finance Minister Michael Noonan told the Dáil yesterday.

Mr Noonan disclosed that deposits held at Bank of Ireland and AIB “improved significantly” since last Thursday’s bank restructuring and recapitalisation programmes were announced by the Government and the Central Bank.

He added their three main objectives — to restore confidence in the banking system and the economy; to recapitalise and restructure the banks and to restore credit to the economy — are being fulfilled.

“Over the period to 2013, to resize their balance sheets and achieve acceptable loan to deposit ratios, the pillar banks need to deliver their balance sheets by in excess of €55 billion of loans.

“Each year, on average, €10bn of existing loans get repaid in the pillar banks’ core businesses — that is more than €30bn over three years,” he said.

Mr Noonan said that since last week’s announcements the share price of Bank of Ireland and AIB had risen; Irish 10-year bond rates have fallen below 10%; rating agency Standard & Poor’s had removed Ireland from CreditWatch and Morgan Stanley encouraged investors to buy Irish sovereign debt.

“I appreciate confidence is a fragile flower that can fade under the stress of international events. The initial response is however very positive and this is to be warmly welcomed,” he said.

“More critical, however, to our plans is having a new approach to system design so as to provide the necessary credit to spearhead economic recovery. Economies cannot function without access to credit. Certainly, they cannot grow without access to the credit required to permit such growth.

“As consumer and business certainty recovers, credit demand improves. Householders feel less insecure about income and employment prospects and businesses feel more comfortable about making investment decisions.

“If improvement in credit conditions helps to stabilise asset prices, credit demand will then increase further. But without access to lending and credit none of this can occur,” he said.

Mr Noonan said the key to creating the potential for new lending is to be found in a full understanding of the deleveraging process.

“It is that dynamic which presents the catalyst for new lending and a clear change of direction from failed past policies.

“The Central Bank has estimated for me that SME and mortgage credit of €11bn to €16.5bn ofgross new lending will be required in total over the next three years. Our plan creates capacity for the pillar banks to lend in excess of €30bn over the same three-year period,” he said.

The Finance Minister said the €30bn or more of expiring lending over the three years had to be saved for the Irish economy system.

“The banks could not come under pressure to pocket the cash and use it to repay the ECB. It had to be recycled into the economy,” he added.

The minister said his staff have met with the CEOs of the banks to explain what will be required in the upcoming weeks and months.

“Details of how the implementation of these policies will be effected are being finalised by the Banking Policy Division of my department, working with officials from the NTMA and the Central Bank,” he promised.