Business Irish

Saturday 3 December 2016

Banks 'will need an extra €50bn' to cover losses

Published 27/03/2011 | 05:00

CENTRAL BANK: Prof Honohan. Photo: Steve Humphreys
CENTRAL BANK: Prof Honohan. Photo: Steve Humphreys

THE Irish banks could need another €50bn to cover their black hole of losses and will soon be running to the EU-IMF for a second bailout, the chief economist of Friends First, Jim Power, has warned.

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As the Government has already poured €46.3bn of taxpayers' money into the banks, this would bring the total bill for rescuing the banks to almost €100bn.

Mr Power's warning comes as the banks brace themselves for tough EU stress tests next week -- where they must show they have enough capital to withstand another few years of economic turmoil.

Mr Power believes the banks will need between €25bn and €30bn to cover their losses once the new stress tests kick in. "However, that won't be the end of it," he said. "This time next year, the figure will have climbed to €50bn."

As about €35bn was earmarked for the banks under last November's EU-IMF deal, a €50bn rescue bill would make a second international bailout "inevitable", he said.

Jennifer Kapila, a strategist with Roubini Global Economics, said it was "not inconceivable for losses (in the banks) to reach €35bn" if the assets that back up the banks' loans were recorded at their current market value.

"This is not a normal approach to treating loans, particularly if the bank is a going concern," said Ms Kapila. "Unfortunately, Irish banks may be incapable of attracting private investment until they take such a draconian approach to their asset exposures," she added.

The worst case scenario envisaged by the Central Bank for its new stress tests was for economic growth to shrink by 0.2 per cent last year. However, economic figures published last week -- showing a one per cent slump -- put the banks under more pressure.

"There is nothing to suggest that our economy will turn around dramatically over the next year," said Tony Foley, economics lecturer with DCU.

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