Honohan: Sell banks to overseas players

THE Governor of the Central Bank has said that the best way to achieve stability in Ireland’s banking system is to sell the main banks to overseas players.

He added, however, that he would be “disappointed and surprised” if all of the €35 billion, earmarked for the banks from the IMF/EU bailout, is ultimately needed.

Addressing the Institute of International and European Affairs (IIEA), in Dublin yesterday, Patrick Honohan said that foreign ownership of the main Irish banks would introduce fresh capital, more risk control and other management skills to the system.

In a separate statement, the NTMA said it could re-enter the bond markets they were forced to abandon late last year after international lenders lost confidence in the Irish economy.

The chief executive of the National Treasury Management Agency, John Corrigan, said it was “possible” the state could re-enter the markets before the year end and on balance said a return to normal borrowing was more “probable in 2012”.

Mr Corrigan was speaking at the launch the debt management agency’s report and review for 2010.

It showed that the cost of servicing the national debt last year was €4.8bn, almost 25% of the €20bn the agency borrowed last year to offset the €18.7bn budget deficit.

Mr Corrigan stressed that re-entering to the bond markets would not happen in the short-term given that Portugal, which hopes to raise money next week via a bond issue is facing punitive interest rates of 7%.

NTMA will only go back into the market when the cost of borrowing moved closer to the 5.8% average being charged on the €85bn being lent to Ireland by the IMF and the ECB.

Meanwhile, a new Government will not be able to renegotiate Ireland’s controversially high bailout interest rates, Finance Minister Brian Lenihan insisted last night.

Responding to comments made by Mr Honohan, Mr Lenihan said certain parts of the deal would be open for new talks, but bringing down the severe 5.8% rate could not be possible for any incoming administration.

Mr Lenihan said the rates were determined by a common approach for any borrower.

“Accordingly, any changes to these rates cannot be negotiated for Ireland in isolation and must be seen in the wider context,” he said.

Mr Lenihan said there was an opportunity for a new government to “substitute alternative measures within the programme where they are as economically efficient and of equal fiscal effect”.