Business Irish

Saturday 19 August 2017

Banks to avoid paying interest to Nama despite negative rate

Finance minister Michael Noonan. Photo: Mark Condren
Finance minister Michael Noonan. Photo: Mark Condren
Gavin McLoughlin

Gavin McLoughlin

Irish banks are to avoid paying interest to Nama despite the interest rate on the agency's senior debt turning negative earlier this week.

Market estimates put the saving at just over €5m over the next six months, when the interest rate on the debt will be reset again.

The debt was issued to banks in exchange for problem loans during the crash. The interest rate on the debt is reset twice a year - at the beginning of September and March - with the latest pricing seeing the negative rate locked in. As of March 1, €8.09bn of the bonds are left outstanding, with €5.6bn owed to AIB, €1.4bn to Bank of Ireland, €772m to Permanent TSB, and €254m to the Central Bank. Last year, Nama wrote to Finance Minister Michael Noonan saying the interest rate - the six-month Euribor - was going to turn negative if market trends continued.

The board said that "had the possibility of negative rates been envisaged... the notes would likely have had an effective zero interest rate floor to protect ECB eligibility". Noonan issued a direction that Nama take appropriate steps to ensure a negative rate would not apply, understood to be that the notes will be interpreted as having a zero interest rate floor.

Negative interest rates would mean the banks could no longer borrow from the ECB using the bonds as collateral. It would also have negatively impacted the banks' ability to meet regulatory liquidity requirements, and hit Nama's profit & loss account, according to a letter from Nama boss Brendan McDonagh to Noonan, released to this newspaper under Freedom of Information. The value of the hit was redacted.

Sunday Indo Business

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