BANK of Ireland could be forced to raise over €1 billion in fresh capital to guarantee its key capital ratios are in line with best international practice.
That is significantly higher than some analysts believe is necessary, but it is understood the bank, given the right market conditions, will aim for that figure.
That’s about half what AIB said it intended raising to bring its capital ratios in line with best international practices that have become more stringent since the global credit crunch caused havoc for the banks and the global credit markets.
During the six months to end September 2009, Bank of Ireland said it anticipated its equity tier 1 ratio may have improved from 6.2% at March 31, 2009, the end of its last financial year, to between 6.5% and 6.7% at September 30, 2009.
During the year its tier 1 ratio was boosted by the buy-back of €1.7bn nominal tier 1 debt securities.
Overall it is understood the bank intends to keep its tier 1 ratio pitched close to 6%. The transfer of €16bn in loans to NAMA will put pressure on the bank to beef up its balance sheet with further additional funds that it expects to raise from markets that have reacted favourably to the Government’s NAMA initiative.
In its trading statement the group also acknowledged the announcement by the minister for finance of a new government guarantee scheme to replace the one that ends of September 29, 2010.
Bank of Ireland welcomed “the clarity” the announcement provides for the bank into the future and also the “flexibility” it offers in allowing the bank to issue un-guaranteed debt as market conditions improve.
It noted however that the cost of the guarantees are going up.
The cost of the existing scheme to the bank will rise to €130m for the half-year to March 2010 compared to just €110m for the 12 months to September 2009.
The charge for the new scheme will also be costlier and in line with EU guidelines, said the bank.
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