Wednesday 23 August 2017

Developers will be hit with interest rate hikes on toxic loans

Some of Ireland's largest developers will be hit by rising interest rates as NAMA raises the cost of loans they've got with the agency, following recent ECB moves.

The agency has lent €592m to a variety of developers for working capital purposes and while a small portion of this is lent at fixed rates, the vast majority is at floating rates linked to the European inter-bank rate, Euribor.

Euribor has been rising since last Thursday when ECB president Jean Claude Trichet signalled a rate rise is on the way, most likely in April. Developers are already paying 2.5pc above prevailing market rates like Euribor.

Three-month Euribor hit 1.172pc yesterday, up from 1.162pc late last week. Six-month Euribor was at 1.487, up from 1.475pc. Developers' loans are most often priced off six-month Euribor.

NAMA has also an interest rate risk of its own tied to NAMA bonds it has issued to banks, however it is attempting to hedge out this risk with derivatives.

Emmet Oliver

Irish Independent

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