Sell-off would offer more protection: Honohan

IRELAND’S top banker has said the sale of Irish banks to major international banks would offer much greater protection in the future.

As fears about the extent of bank losses continue to unnerve the markets, Central Bank governor Patrick Honohan told delegates at a Dublin business conference: “They are for sale as far as I am concerned. I’ve been an advocate for a number of years for small countries to have foreign owners for their banks.”

Shares in AIB and Bank of Ireland fell heavily for a second day when Mr Honohan warned that higher bank capital ratios and more disclosures on residential mortgages and other personal loans were crucial steps in restoring confidence to the economy and its banks.

In response to questions the governor said “I think we’ve taken steps which have not yet been sufficient to restore confidence”, in the country and its banks.

On the possible sale of the banks, he said being owned by bigger multinational institutions would give the banks much greater protection. Big banks also carry “greater expertise” and were less likely to make costly mistakes.

He thought IMF support should boost confidence in Ireland and its banks, but he warned the loans under negotiation for the bailout will have a lot of conditions attached. He said the lack of confidence shown by the markets to the banks and the Government was overdone, but IMF support should help to change that around, he said.

In an address to the Chartered Accountants of Ireland he said the banks also had a role to play in easing market concerns about them. That can be done by providing a better supply of information to the global markets, he said. Disclosure practices by Irish banks were formed during good times when bank shares and bank profits were on the increase, and the information supplied was aimed essentially at stockbrokers.

Since the construction and banking collapse, the emphasis has changed, he said.

The key analysts whose concerns have to be addressed by our banks are the global investors who supplied crucial lending to the sector in the good times, who are still demanding assurances that the banks are reaching the end of their lending losses. Some fear this is not so and that the bailout, estimated at €50 billion, will hit €90bn before the full implications of the banking implosion has been finally nailed down.

In that context, the new capital ratios of 8% due to be in place by end 2010 may need to be raised further, Mr Honohan said. By 3.30pm yesterday shares in the Irish banks again showed losses with AIB down 16.6% to 34c, Bank of Ireland down 23% at 30c and IL&P 5.95% lower at 79c.