Financial sector braces for more testing times Later in the year, we'll know if the 'new Ireland' is going to be served by just three big banks -- AIB, BOI and Ulster
Published 24/03/2011 | 05:00
AT last, it's showtime. For more than two years, Ireland has watched the banking black hole get bigger and bigger -- this year, it's finally time to sort the whole mess out.
First up are Anglo Irish Bank and Irish Nationwide, who've already handed over their €12.2bn deposit books to AIB and Irish Life & Permanent.
A business plan detailing the wind-down of the two defunct institutions is with Brussels and is expected to get the nod at the end of March.
The odds are that the two institutions will be no more by the end of the summer, unless the fledgling Government has some serious tricks up its sleeve.
The long-awaited sale of building society EBS is finally in the offing as well, with private equity consortium Cardinal on the verge of making the building society its own after a nine-month scrum.
The rest of the sector isn't escaping the whirl of activity either.
Within days, we'll have the results of the much-anticipated stress tests, affectionately dubbed PCAR (the capital one) and PLAR (the liquidity one).
These will show us if the main institutions -- Bank of Ireland (BOI), AIB, Irish Life & Permanent (IL&P) and EBS -- are finally strong enough to withstand future shocks.
The results of the tests will tell us if institutions need even more state cash -- which would be particularly significant for 'non-nationalised' BOI and IL&P.
The stress tests' outcome will also help the authorities form views on the volume of assets Irish banks need to sell in order to be viable without state support.
By the time the first flowers of summer appear, we should know which banks will avoid state ownership (for now at least), and which assets will be sold off, and how quickly.
We should also know whether banks will only have to sell off non-core businesses, or whether they'll have to sell off piles of loans into a new Nama II.
Later in the year, we'll know if the 'new Ireland' is going to be served by just three big banks (AIB, BOI and Ulster) or if Cardinal is going to put its money where its mouth is and complement the acquisition of EBS with a few bigger trophies.
And we'll find out if the Chinese, or some other big international investor group, is going to swoop on Ireland's bargain-basement banking assets like AIB.
Beyond the bigger picture stuff of mergers, takeovers and sell-offs, 2011 will also see banks trying to get to grips with the day-to-day business of operating in post-boom Ireland.
"In the era of the Celtic Tiger, banks became far too focused on property lending, and they lost some skills of lending to other parts of the economy," admits Pat Farrell, who heads up the Irish Bankers Federation (IBF).
The IBF has been "engaged" with Enterprise Ireland to discover the new growth areas in the economy and help upskill banks in how to lend against businesses' cash flow, instead of just lending against property.
"We've even had banks in from other jurisdictions who've got a lot of experience in this kind of lending," says Mr Farrell. "They're sharing their experience here."
Banks will have an uphill battle to win back trust from an SME sector that claims requests are being unreasonably refused on a near-daily basis, but Mr Farrell believes the battle must be fought.
"When the inflection point comes in the economy, and things turn towards growth again, we need to make sure the banking system is fit for purpose and ready to serve the economy," he says.
Later in the year, we'll know if the 'new Ireland' is going to be served by just three big banks -- AIB, BOI and Ulster