A ‘reckless abandonment’ of lenders’ principles

THE head of NAMA has said a trawl through the banks’ books has revealed “a troubling picture” of how loans were secured and where there was a “reckless abandonment of basic principles” by lenders.

There had been an over-reliance on solicitors’ undertakings, a lack of stress-testing on loans, and the approval of irregular mortgages at all levels of banking, said agency chief executive Brendan McDonagh.

The NAMA chief revealed the banking practices while telling TDs why the average discount of 47% for loans transferred to the agency was different from the initial “haircut” of 30%, estimated last year.

That initial estimate was based on figures provided by the five financial institutions involved in NAMA. But Mr McDonagh added: “However, our own detailed due diligence on a loan by loan examination has revealed a troubling picture of poor loan documentation, of assets not properly legally secured and of inadequate stress-testing of borrowers and loans.”

These banking practices had been “all born of a mindless scramble to funnel lending into one sector [property] at considerable pace and of a reckless abandonment of basic principles of credit risk and prudent lending,” the NAMA chief told the Oireachtas Committee on Finance.

NAMA had achieved the higher discount on acquiring €16 billion in the first tranche of bad loans after a detailed scrutiny of bank documents and a sober assessment of the securities put up for the loans in the first place, TDs heard.

But the trawl through the banks’ loan books had revealed pieces of land where titles were described incorrectly and where mortgages in the end applied to one person as opposed to a couple, it was added.

“It looked to me that they [bankers] where taking a very benign view of their loan book,” added Mr McDonagh. The committee was told the reckless banking practices had occurred at all levels within financial institutions.

The first bad loans have been transferred across to NAMA from four institutions except for Anglo Irish Bank, which is expected to happen in the next 10 days.

The delay accounted for the fact that half of the 1,200 initial bad loans being taken over by NAMA related to Anglo, TDs were told.

This amounts to €10bn of the €16bn in loans being acquired.

It was a “long and difficult process” trying to get documentation and due diligence on the loans, added the NAMA chief.

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