ANN CAHILL: Regulator warns banks amid poor outlook

Irish banks need to raise up to €4bn, preferably from the market, to meet international capital requirements, Financial Regulator Matthew Elderfield said, as the European Commission warned that bank deleveraging plans may be at risk.

While the European Commission remarked positively on the progress made by the domestic banks on recapitalising and on the deleveraging under the bailout programme, they were not as optimistic about the future.

“Looking ahead, challenging market conditions and the deteriorating quality of remaining assets for disposal may put the achievement of future deleveraging objectives at risk,” the commission report said.

Mr Elderfield warned Irish banks must up their game now. While he too acknowledged that Ireland was making good progress in stabilising the banks, he said they must now adjust to come into line with the requirements of the rest of the banking sector, as they will undergo the next test by European supervisors.

He cautioned that the banks needed more time to check their credit portfolio and said: “They are not as far as they should be, their operative ability is not as strong as it could be.”

While the Central Bank governor, Patrick Honohon said last week that the banks remained adequately capitalised, the demands of the Basel III rules would likely force banks to increase their capital, Mr Elderfield said in March.

He reiterated this yesterday: “In the medium term, they will certainly need more capital, if only because of the stricter international capital requirements.”

In an interview with the German newspaper Börsen Zeitung he said: “With regards to measuring capital and the question of which instruments count and which do not, the institutes must go even further. In the coming five to six years, the Irish banks should need a further €3-4bn.”

The state has already pumped €64bn worth of capital into the banks which are struggling to return to profitability before the Basel III rules force them to build up capital buffers by 2019.

A statement from the Central Bank last night said the Irish banks in line with others need to strengthen their capital position to ensure full compliance with the revised Capital Requirements Directive. “The goal is that the banks should meet these more rigorous requirements through improving profitability through the transition period.”

The statement included a quote from Mr Elderfield made during a speech in March in Dublin: “At the two pillar banks, the elimination of deferred tax assets in the order of about €5bn will have to be met through utilisation of taxable profits, or, to the extent that profits are not available, through additional capital. Therefore, the sooner the banks can be restored to profitability then the better they will be able to meet these medium term targets, ideally from market sources”.

The government is hoping that Germany and the Netherlands will change their refusal to allow the EU’s bailout fund, the ESM, to provide money directly to recapitalise banks.

The commission proposed an EU-wide deposit guarantee scheme and a change in the ESM treaty to allow it to fund banks yesterday. German finance spokesperson Martin Kotthaus said they would study the proposals in detail.


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