Government praised for creating ‘ingenious mechanism’ of NAMA
There are several successful historical precedents to NAMA, where a new agency swaps banks’ troubled assets against government bonds, according to a report prepared by ratings agency, Moody’s.
Dietmar Hornung, vice president-senior analyst at Moody’s, said: “After the transfers, the banks will have much healthier balance sheets, albeit at the cost of substantial government ownership.”
The Irish Government and the regulator have demonstrated their determination to put the banks into a strengthened position from which they can re-engage with the economy and support its growth through renewed intermediation, according to Moody’s.
Another senior analyst at Moody’s, Ross Abercromby, said the NAMA transfers and the resulting improvement in banks’ balance sheets is generally positive for the Irish banks’ own credit profile.
The agency pointed out that the banks trade their assets for government bonds that pay interest and are redeemable at the European Central Bank (ECB).
“The government bonds in question are a specific type of instrument that is not raised or traded on the market and does not create refinancing risk for the Government – indeed, it is unlikely that banks will ever force the Government to repay them,” says Mr Hornung.
“Moody’s has interpreted the NAMA idea rather favourably for the Government as well as the banks.
“It is a way for the Government to protect the asset side of its balance sheet (ie its power to tax, which is predicated on the rebound of the economy) and to accelerate the restoration of the credit channel, although at the price of greatly increasing its gross liabilities,” he added.
Moody’s said that as the Government’s debt trajectory has now become clearer with the decisions on NAMA transfers, it is closer to determining at what level within the Aa rating range the Government’s ratings are likely to settle.
Meanwhile, the International Monetary Fund (IMF) said the transfer of assets to NAMA represents an important step to help the country’s financial sector recover.
And Central Bank governor, Patrick Honohan has said it is likely another €10 billion will be necessary for Anglo Irish Bank.
“This is a truly shocking figure, albeit one that is affordable for the state,” he said.
The much bigger “haircut” than previously guided of 47%, applied to the first tranche of loans, was the result of the worse-than-expected slump in the property market, he said.
In an opinion piece in the Financial Times Mr Honohan said the loans are being bought at “quite deeply discounted rates”.
“The pricing has been designed with the objective of enabling NAMA to recover its substantial outlays,” he said.
