Irish banks still a concern, says ECB’s Draghi

Irish banks remain a source of concern, the EU’s top banker has warned, putting a damper on any celebrations of the country’s exit from the bailout programme.

Swift and decisive action is needed on outstanding issues relating to the banks, ECB governor Mario Draghi told the European Parliament.

He questioned the adequacy of next year’s budget and the Central Bank’s balance sheet assessment, saying while it showed there was no capital shortfall, it related to just one point in time and so was not forward looking. It “fell short of the stringent test that will be conducted” by the ECB next year prior to the ECB taking over supervision of the banks, Mr Draghi said.

Irish banks need to set aside capital to cover loans that could go bad in the future, and need to do this before next year’s ECB stress tests, he said.

He told Fine Gael MEP Gay Mitchell it was “crucial” for Ireland to push ahead with the outstanding issues.

“We still have a positive but more cautious assessment of the budget for 2014, even if targets are likely to be met,” he said.

There was some argument over whether the Government should go for a bigger budget reduction next year with the troika recommending a 3.1% cut in 2014 and a smaller cut the following year.

Mr Draghi described the Government’s aim as “credible” to cut the budget deficit to 4.8% of GDP next year — exceeding the requirement of 5.1%.

Regarding dividends for austerity, he said: “I think there was a statement that the country has regained national pride in leaving the programme... That is true, correct, but this concept really comes true when translated into higher growth and jobs.”

Fianna Fáil’s finance spokesman Michael McGrath called on the Central Bank to release the full findings of the bank assessment, which was given to the troika at the end of last month.

“While we have exited the EU/IMF programme, we need to remember that the future health of the economy is inextricably linked to the banks. Under-capitalised banks are a threat to economic recovery as they risk starving businesses of much needed credit,” he said in a statement.

Bank of Ireland said it was publishing details of the bank’s credit risk exposures on its website, bankofireland.com/investor.