Review welcomes bank debt deal plans

In the latest review of the IMF/EU bailout programme, the Government welcomed the June 29 statement by the eurozone heads of state committing to “sever the pernicious link between the banks and the sovereigns and mandating the eurogroup to examine the situation of the Irish financial sector with a view to enhancing the sustainability of our well-performing programme”.

Whether the Government has been successful in getting some sort of a deal on the €64bn that has been pumped into bailing out the banking system will become apparent over September and October. As part of banking union plans tentatively agreed at the end of June, bank losses across the region could be hived off into a EU special purpose vehicle.

If Ireland can get a deal on restructuring bank debt, then it would go a long way towards helping the country make a full return to the markets. After all, stabilising the banking system forms a big part of the IMF-EU bailout programme.

“The overarching strengthening, restructuring, and right sizing of the domestic banking sector and the credit union sector is also progressing according to plans, including for example with the completion of the remaining capitalisation of Permanent TSB, and some of the work streams in the Financial Measures Programme — independent asset quality review, distress credit operations review, a data integrity validation exercise and an income recognition and re-aging project — the submission to the European Commission of a restructuring plan for Permanent TSB and the publication of the legislation on personal insolvency reform,” the government said in its latest update.

The update also committed to providing the relevant information to the European Commission, the IMF and the ECB on several other ongoing financial sector restructuring targets for subsequent reviews.

There will be an assessment of the banks’ deleveraging targets agreed in 2011. The update notes that a firesale of assets will be avoided as will any “excessive deleveraging of core portfolios” that would hamper the banks’ ability to transmit credit to the economy.

There will be an assessment of the banks’ progress to meet the capital requirements under Basel III rules.

There will be a full update on the ‘work-out’ of banks’ non-performing mortgage books and SME portfolios in accordance with key performance indicators.

The government promises a full progress report on the reorganisation of the banking sector including any steps taken to improve the strength of the credit unions.

There will be a full update on the government’s plans to improve the financial supervisory framework for financial institutions.

Moreover, there will be a full progress report on the banks’ implementation of their strategies to address loan arrears and unsustainable debts in banks’ mortgage and SME loan portfolios.

Furthermore, AIB’s new management team will provide an update on its restructuring plan to enhance revenue; reduce operating costs and restructure operations. This plan will then have to be submitted to the European Commission for approval under state aid rules.