Irish banks will need €18bn injection

STRESS tests are set to show Ireland will need to pump another €18 billion into its banks, it emerged last night.

Tense negotiations ahead of the release of the “definitive” assessment of how much Irish financial institutions need were continuing down to the wire of Thursday’s release of the true scale of Irish banking liabilities.

Ministers are pushing the European Central Bank to allow them to find some of this money by reducing payments to bondholders and reduce the amount of the €67.5bn EU-IMF loan needed.

While the €18bn figure is at the lower end of forecasts, it will mean a total of €64bn of taxpayers’ money being injected into the banks.

The move came as a possible multi-billion euro “debt forgiveness” package for the 100,000 families now facing being locked-into escalating mortgage areas emerged as a major political option.

Housing Minister Willie Penrose said that debt forgiveness could not be ruled out as an option, but that the stress-test figures need to be assessed first.

“It’s going to be an area that will have to be considered, but I cannot pre-judge the stress tests,” he said.

Senior Government backbencher Ciaran Lynch, who crafted much of Labour’s policy in mortgage crisis relief which was subsequently included in the Programme for Government, said debt forgiveness was “going to have to be seriously considered,” with at least part of mortgages being written off at a cost of billions of euro.

Ciaran Phelan, chief executive of the Irish Brokers’ Association, said short-term assistance like deferring and reducing payments was not a long-term solution as many people who bought during the boom now had mortgages twice the value of their properties.

“Debt forgiveness is a very emotive term, we’re not sure that’s a solution in itself, it might be something that needs to be looked at. Cognisance has to be given to people who bought at the height of a property bubble,” he said.

Agriculture Minister Simon Coveney said debt forgiveness could not be “ruled in or ruled out” until the stress test figures were assessed, but warned that the taxpayer would still foot the bill for any such relieving of private mortgage debt.

Any burden-sharing is likely to be confined to bondholders of Anglo Irish Bank and the Irish Nationwide Building Society, both of which are being wound up.

Discussions were also centring on what assets Allied Irish Bank and Bank of Ireland would have to sell off. Both banks have already identified their core and non-core assets in plans submitted to the Central Bank earlier this month.

The Government is anxious for the now mostly nationalised banks to hold onto some of what might be seen as non-core assets, such as some loans, as they believe they could make the banks more attractive to would-be purchasers.

The bank’s British operations would be hived off and the ECB, IMF and European Commission is being asked to agree that these do not have to be sold immediately but can be held until the potential price for them improves.

The timeline for how long they can be held onto has yet to be agreed. The ECB needs to be convinced that these assets will be sold and that the size of the country’s banking sector is severely reduced. If, as expected, the stress tests show that the four Irish banks, AIB, BoI, Irish Permanent and EBS, need €18bn in new capital, the full sum will need to be injected almost immediately.

The ECB is reported to be agreeable to provide medium-term funding for the Irish banks, stretching out over the next seven years to replace the current emergency funding, renewed every two weeks. Reports from the ECB say that this mechanism will be available to eurozone banks.

Meanwhile, it emerged last night that the abolition of mortgage interest relief — worth €30,000 or more to first-time buyers — will not go ahead in June and looks likely to remain until the end of the year at least.

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